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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11666
GENESIS HEALTH VENTURES, INC.
(Exact name of Registrant as specified in its charter)
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101 East State Street
Pennsylvania Kennett Square, PA 19348 06-1132947
(State or other jurisdiction of (Address of principal executive (I.R.S. Employer
incorporation or organization) offices including zip code) Identification Number)
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(610) 444-6350
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common Stock, par value $.02 per share New York Stock Exchange
9 3/4% Senior Subordinated Debentures due 2005 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days. YES _X_ NO___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant is $281,820,464 (1). As of December 14, 1998, 35,227,558 shares
of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific sections incorporated are identified under applicable items herein)
Certain portions of the Company's Proxy Statement to be filed in connection with
its 1999 Annual Meeting are incorporated by reference in Part III of this
Report. Certain exhibits to the Company's Current Report on Form 8-K and 8-K/A
dated October 10, 1997, July 11, 1996, May 3, 1996, November 30, 1995, August
18, 1995, November 30, 1993 and September 19, 1993, Registration Statement on
Form S-1 (File No. 33-4007), Registration Statement on Form S-1 (File No.
33-51670), Registration Statement on Form S-3 (File No. 33-9350), Registration
Statement on Form S-4 (File No. 333-15267), Registration Statement on Form S-4
(File No. 333-58221), Registration Statement on Form S-8 (File No. 333-53043),
Annual Reports on Form 10-K for the fiscal years ended September 30, 1996, 1995,
1993 and 1992, and Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1998, March 31, 1997, March 31, 1996 and March 31, 1994, Registration
Statement on Form 8-A dated May 11, 1995, Filing on Schedule 13D on May 6, 1998
and the Tender Offer Statement on Schedule 14D-1 filed by Genesis Eldercare
Corp. on June 20, 1997 are incorporated by reference as Exhibits in Part IV of
this Report.
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(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Company's Common Stock outstanding, reduced by the amount
of Common Stock held by officers, directors and shareholders owning in
excess of 10% of the Company's Common Stock, multiplied by the last
reported sale price for the Company's Common Stock on December 14, 1998.
The information provided shall in no way be construed as an admission that
any officer, director or 10% shareholder in the Company may or may not be
deemed an affiliate of the Company or that he/it is the beneficial owner of
the shares reported as being held by him/it, and any such inference is
hereby disclaimed. The information provided herein is included solely for
recordkeeping purposes of the Securities and Exchange Commission.
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INDEX
PAGE
Cautionary Statements Regarding Forward Looking Statements 2
ITEM 1: BUSINESS
General ..............................................................8
Basic Healthcare Services.............................................9
Specialty Medical Services............................................9
Management Services and Other........................................10
Strategic ClinicalInitiatives........................................11
Revenue Sources......................................................11
Marketing............................................................13
Personnel............................................................14
Employee Training and Development....................................14
Governmental Regulation..............................................15
Competition..........................................................16
Insurance............................................................17
ITEM 2: PROPERTIES...........................................................18
ITEM 3: LEGAL PROCEEDINGS....................................................18
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................19
ITEM 4.1: EXECUTIVE OFFICERS.................................................20
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS......................................22
ITEM 6: SELECTED FINANCIAL DATA..............................................23
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................25
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................40
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................................63
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................63
ITEM 11: EXECUTIVE COMPENSATION..............................................63
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......63
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................63
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K......63
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Cautionary Statements Regarding Forward Looking Statements
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" such as statements concerning
Medicare and Medicaid programs, the Company's ability to meet its liquidity
needs and control costs and expected future capital expenditure requirements,
the Company's arrangements with ElderTrust and the expected effects of the
Vitalink Transaction, PPS (as defined) and Year 2000 compliance, certain
statements contained in "Business" such as statements concerning strategy,
government regulation and Medicare and Medicaid programs, certain statements in
the Notes to Consolidated Financial Statements, such as certain of the pro forma
adjustments; and other statements contained herein regarding matters that are
not historical facts are forward-looking statements within the meaning of the
Securities Act. Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward
looking statements. Factors that could cause actual results to differ materially
include, but are not limited to the following: the Company's substantial
indebtedness and significant debt service obligations; the Company's ability to
secure the capital and the related cost of such capital necessary to fund future
growth; changes in the United States healthcare system and other changes in
applicable governmental regulations, including PPS, that might affect the
Company's profitability; the Company's continued ability to operate in a heavily
regulated environment and to satisfy regulatory authorities; the occurrence of
changes in the mix of payment sources utilized by the Company's patients to pay
for the Company's services; the adoption of cost containment measures;
competition in the Company's industry; the Company's ability to identify
suitable acquisition candidates, to consummate or complete development projects
or to profitably operate or successfully integrate enterprises into the
Company's other operations; the impact on the Company's information technology
systems and the availability and cost of personnel trained in the Year 2000
compliance area, and the failure of the Company's payors, suppliers and other
third parties to respond to the Company's inquiries as to whether the systems
and equipment supplied to the Company are compliant and adequately remediate
Year 2000 issues; and changes in general economic conditions.
Substantial Leverage and Debt Service; Restrictions on Indebtedness
The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of September 30, 1998, the Company had approximately
$1,358,595,000 of long-term indebtedness which represented 61% of its total
capitalization. The degree to which the Company is leveraged could have
important consequences, including, but not limited to the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited or
impaired; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations; (iii)
the Company's operating flexibility with respect to certain matters is limited
by covenants contained in certain debt agreements which limit the ability of the
Company and its subsidiaries with respect to the incurrence of additional
indebtedness and entering into sale and leaseback transactions or other loans,
investments or guarantees, the creation of liens, the payment of dividends and
sales of assets and set forth minimum net worth requirements; (iv) the Company's
degree of leverage may make it more vulnerable to economic downturns and less
competitive, may reduce its flexibility in responding to changing business and
economic conditions and may limit its ability to pursue other business
opportunities, to finance its future operations or capital needs, and to
implement its business strategy; and (v) certain of the Company's borrowings are
and will continue to be at variable rates of interest, which exposes the Company
to the risk of greater interest rates.
Required payments of principal and interest on the Company's indebtedness are
expected to be financed from its cash flow from operations. The Company's
ability to make scheduled payments of the principal of, to pay interest on or to
refinance its indebtedness depends on the future performance of the Company's
business, which will in turn be subject to financial, business, economic and
other factors affecting the business and operations of the Company, including
factors beyond its control, such as prevailing economic conditions. There can be
no assurances that cash flow from operations will be sufficient to enable the
Company to service its debt and meet its other obligations. If such cash flow is
insufficient, the Company may be required to refinance all or a portion of its
existing debt, to sell assets or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any such sales of
assets or additional financing could be achieved. The Company also has
significant long-term operating lease obligations with respect to certain of its
eldercare centers.
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Risk of Adverse Effect of Healthcare Reform; Medicare Prospective Payment System
In recent years, a number of laws have been enacted that have effected major
changes in the health care system, both nationally and at the state level. The
Balanced Budget Act of 1997 (the "Balanced Budget Act"), signed into law on
August 5, 1997, seeks to achieve a balanced federal budget, by, among other
things, reducing federal spending on the Medicare and Medicaid programs. With
respect to Medicare, the law mandated establishment of a prospective payment
system ("PPS") for Medicare skilled nursing facilities ("SNFs") under which
facilities will be paid a federal per diem rate for most covered nursing
facility services (including pharmaceuticals).
Pursuant to the Balanced Budget Act, commencing with cost reporting periods
beginning on July 1, 1998, PPS began to be phased in for skilled nursing
facilities at a per diem rate for all covered Part A skilled nursing facility
services as well as many services for which payment may be made under Part B
when a beneficiary who is a resident of a skilled nursing facility receives
covered skilled nursing facility care. The consolidated per diem rate is
adjusted based upon the resource utilization group ("RUG") which relates to the
patient's diagnosis. In addition to covering skilled nursing facility services,
this consolidated payment will also cover rehabilitation and non-rehabilitation
ancillary services. Physician services, certain nurse practitioner and physician
assistant services, among others, are not included in the per diem rate. For the
first three cost reporting periods beginning on or after July 1, 1998, the per
diem rate will be based on a blend of a facility-specific rate and a federal per
diem rate. In subsequent periods, and for facilities first receiving payments
for Medicare services on or after October 1, 1995, the federal per diem rate
will be used without any facility specific blending.
The Balanced Budget Act requires consolidated billing for skilled nursing
facilities. Under the Balanced Budget Act, the skilled nursing facility must
submit all Medicare claims for Part A and Part B services received by its
residents on a consolidated bill with the exception of physician, nursing,
physician assistant and certain related services, even if such services were
provided by outside suppliers. Medicare will pay the skilled nursing facilities
directly for all services on the consolidated bill and outside suppliers of
services to residents of the skilled nursing facilities must collect payment
from the skilled nursing facility. Although consolidated billing was scheduled
to begin July 1, 1998 for all services, it has been delayed until further notice
for beneficiaries in a Medicare Part A stay in a skilled nursing facility not
yet using PPS for the Medicare Part A stay. There can be no assurance that the
Company will be able to provide skilled nursing services at a cost below the
established Medicare level.
Congress continues to focus on efforts to curb the growth of federal spending on
health care programs such as Medicare and Medicaid through changes in the
payment methodology such as PPS. Congress' efforts have not been limited to
skilled nursing facilities, but have and will most likely include other industry
services. For example, the Balanced Budget Act also required that a prospective
payment system for home health services be implemented.
Effective April 10, 1998, regulations were adopted by the Health Care Financing
Administration, which revise the methodology for determining the reasonable cost
for contract therapy services, including physical therapy, respiratory therapy,
occupational therapy and speech language pathology. Under the regulations, the
reasonable costs for contract therapy services are limited to
geographically-adjusted salary equivalency guidelines. However, the revised
salary equivalency guidelines will no longer apply when the PPS system
applicable to the particular setting for contract therapy services (e.g. skilled
nursing facilities, home health agencies, etc.) goes into effect.
3
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The Balanced Budget Act also repealed the "Boren Amendment" federal payment
standard for Medicaid payments to nursing facilities effective October 1, 1997.
The Boren Amendment required Medicaid payments to certain health care providers
to be reasonable and adequate in order to cover the costs of efficiently and
economically operated healthcare facilities. States must now use a public notice
and comment period in order to determine rates and provide interested parties a
reasonable opportunity to comment on proposed rates and the justification for
and the methodology used in calculating such rates. There can be no assurances
that budget constraints or other factors will not cause states to reduce
Medicaid reimbursement to nursing facilities and pharmacies or that payments to
nursing facilities and pharmacies will be made on timely basis. The law also
grants greater flexibility to states to establish Medicaid managed care projects
without the need to obtain a federal waiver. Although these waiver projects
generally exempt institutional care, including nursing facilities and
institutional pharmacy services, no assurances can be given that these projects
ultimately will not change the reimbursement system for long-term care,
including pharmacy services from fee-for-service to managed care negotiated or
capitated rates. The Company anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies.
In July 1998, the Clinton Administration issued a new initiative to promote the
quality of care in nursing homes. This initiative includes, but is not limited
to (i) increased enforcement of nursing home safety and quality regulations;
(ii) increased federal oversight of state inspections of nursing homes; (iii)
prosecution of egregious violations of regulations governing nursing homes; (iv)
the publication of nursing home survey results on the Internet; and (v)
continuation of the development of the Minimum Data Set ("MDS"), a national
automated clinical data system. Accordingly, with this new initiative, it may
become more difficult for eldercare facilities to maintain licensing and
certification. The Company may experience increased costs in connection with
maintaining its licenses and certifications as well as increased enforcement
actions. In addition, beginning January 1, 1999, outpatient therapy services
furnished by a skilled nursing facility to a resident not under a covered Part A
stay or to non-residents who receive outpatient rehabilitation services will be
paid according to the Medicare Physician Fee Schedule.
While the Company has prepared certain estimates of the impact of PPS, it is not
possible to fully quantify the effect of the recent legislation, the
interpretation or administration of such legislation or any other governmental
initiatives on the Company's business. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Accordingly, there can be no
assurance that the impact of PPS will not be greater than estimated or that
these legislative changes or any future healthcare legislation will not
adversely affect the business of the Company.
Regulation
The federal government and all states in which the Company operates regulate
various aspects of the Company's business. In particular, the development and
operation of eldercare centers and the provision of healthcare services are
subject to federal, state and local laws relating to the delivery and adequacy
of medical care, distribution of pharmaceuticals, equipment, personnel,
operating policies, fire prevention, rate-setting and compliance with building
codes and environmental laws. Eldercare centers and other providers of
healthcare services, including pharmacies, are subject to periodic inspection by
governmental and other authorities to assure continued compliance with various
standards, their continued licensing under state law, and to the extent
applicable, certification under the Medicare and Medicaid programs and continued
participation in the Veterans Administration program and the ability to
participate in other third party programs. The Company is also subject to
inspection regarding record keeping and inventory control. The failure to obtain
any required regulatory approvals or licenses by a provider could result in
actions such as, but not limited to, where applicable, the denial of
reimbursement, the imposition of fines, temporary suspension of admission of new
patients to facilities, suspension or decertification from the Medicaid or
Medicare program, restrictions on the ability to acquire providers or expand
existing facilities and, in extreme cases, revocation of the facility's license
or closure of a facility. There can be no assurance that the facilities or
providers owned, leased or managed by the Company, or the provision of services
and supplies by the Company, will meet or continue to meet the requirements for
participation in the Medicaid or Medicare programs or that state licensing
authorities will not adopt changes or new interpretations of existing laws that
would adversely affect the Company.
4
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Many states have adopted Certificate of Need or similar laws which generally
require that the appropriate state agency approve certain acquisitions and
determine that a need exists for certain bed additions, new services and capital
expenditures or other changes prior to beds and/or new services being added or
capital expenditures being undertaken. To the extent that Certificates of Need
or other similar approvals are required for expansion of Company operations,
either through center or provider acquisitions or expansion or provision of new
services or other changes, such expansion could be adversely affected by the
failure or inability to obtain the necessary approvals, changes in the standards
applicable to such approvals and possible delays and expenses associated with
obtaining such approvals. In addition, in most states the reduction of beds or
the closure of a facility requires the approval of the appropriate state
regulatory agency and if the Company were to reduce beds or close a facility,
the Company could be adversely impacted by a failure to obtain or a delay in
obtaining such approval.
The Company is also subject to federal and state laws which govern financial and
other arrangements between healthcare providers. These laws often prohibit
certain direct and indirect payments or fee-splitting arrangements between
healthcare providers that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. These laws include the federal "Stark legislations" which
prohibit, with limited exceptions, the referral of patients for certain
services, including home health services, physical therapy and occupational
therapy, by a physician to an entity in which the physician has a financial
interest and the federal "anti-kickback law" which prohibits, among other
things, the offer, payment, solicitation or receipt of any form of remuneration
in return for the referral of Medicare and Medicaid patients or the purchasing,
leasing, ordering or arranging for any goods, facility services or items for
which payment can be made under Medicare and Medicaid. The Company is also
subject to laws applicable to federal government contracts generally, such as
the False Claims Act, which establishes liability for anyone making false
statements to get a claim paid by the federal government. The federal
government, private insurers and various state enforcement agencies have
increased their scrutiny of providers, business practices and claims in an
effort to identify and prosecute fraudulent and abusive practices. In addition,
the federal government has issued recent fraud alerts concerning nursing
services, double billing, home health services and the provision of medical
supplies to nursing facilities; accordingly, these areas may come under closer
scrutiny by the government. See "Business -- Governmental Regulation."
Furthermore, some states restrict certain business relationships between
physicians and other providers of healthcare services. Many states prohibit
business corporations from providing, or holding themselves out as a provider
of, medical care. Possible sanctions for violation of any of these restrictions
or prohibitions include loss of licensure or eligibility to participate in
reimbursement programs and civil and criminal penalties. These laws vary from
state to state, are often vague and have seldom been interpreted by the courts
or regulatory agencies. From time to time, the Company has sought guidance as to
the interpretation of these laws; however, there can be no assurance that such
laws will ultimately be interpreted in a manner consistent with the practices of
the Company.
In the ordinary course of business, the Company's facilities receive notices of
deficiencies following surveys for failure to comply with various regulatory
requirements. From time to time, survey deficiencies have resulted in various
penalties against certain providers and the Company. These penalties have
included, but have not been limited to, monetary fines, temporary bans on the
admission of new patients, decertifications and the placement of restrictions on
the Company's ability to obtain or transfer Certificates of Need in certain
states. Additionally, actions taken against one provider may subject eldercare
centers under common control or ownership to adverse measures, including loss of
licensure, loss of eligibility to participate in reimbursement programs and
inability to expand or acquire new centers. There can be no assurance that
future actions by state regulators will not result in penalties or sanctions
which could have a material adverse effect on the Company.
5
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Dependence on Reimbursement by Third Party Payors
For the years ended September 30, 1998, 1997, and 1996, respectively, the
Company derived approximately 45%, 39% and 39% of its patient service revenue
from private pay sources, 20%, 24% and 25% from Medicare and 35%, 37% and 36%
from various state Medicaid agencies. Both governmental and private third party
payors have employed cost containment measures designed to limit payments made
to healthcare providers such as the Company. Those measures include the adoption
of initial and continuing recipient eligibility criteria which may limit payment
for services, the adoption of PPS under Medicare, the repeal of the Boren
Amendment requiring Medicaid payments to be reasonable and adequate, and
duration criteria which limit the services which will be reimbursed and the
establishment of payment ceilings which set the maximum reimbursement that a
provider may receive for services. Furthermore, government payment programs are
subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially increase or decrease the rate of program payments to the Company for
its services. There can be no assurance that payments under governmental and
private third party payor programs will remain at levels comparable to present
levels or will, in the future, be sufficient to cover the costs allocable to
patients eligible for reimbursement pursuant to such programs. The Company's
financial condition and results of operations may be affected by the revenue
reimbursement process, which in the Company's industry is complex and can
involve lengthy delays between the time that revenue is recognized and the time
that reimbursement amounts are settled. The majority of the third party payor
balances are settled within two or three years following the provision of
services. The Company's financial condition and results of operations may also
be affected by the timing of reimbursement payments and rate adjustments from
third party payors. In addition, there can be no assurance that centers owned,
leased or managed by the Company, or the provision of services and supplies by
the Company, now or in the future will initially meet or continue to meet the
requirements for participation in such programs. The Company could be adversely
affected by the continuing efforts of governmental and private third party
payors to contain the amount of reimbursement for healthcare services. In an
attempt to limit the federal budget deficit, there have been, and the Company
expects that there will continue to be, a number of proposals to limit Medicare
and Medicaid reimbursement for healthcare services. In certain states there have
been actions taken or proposals made to eliminate the distinction in Medicaid
payment for skilled versus intermediate care services and to establish a case
mix prospective payment system pursuant to which the payment to a facility for a
patient is based upon the patient's condition and need for services. The Company
cannot at this time predict the extent to which these proposals will be adopted
or, if adopted and implemented, what effect, if any, such proposals will have on
the Company. Efforts to impose reduced allowances, greater discounts and more
stringent cost controls by government and other payors are expected to continue.
See "Business - Revenue Sources."
Managed care organizations and other third party payors have continued to
consolidate in order to enhance their ability to influence the delivery of
healthcare services. Consequently, the healthcare needs of a large percentage of
the United States population are increasingly served by a small number of
managed care organizations. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the extent
such organizations terminate the Company as a preferred provider and/or engage
the Company's competitors as a preferred or exclusive provider, the Company's
business could be materially adversely affected. In addition, private payors,
including managed care payors increasingly are demanding discounted fee
structures or the assumption by healthcare providers of all or a portion of the
financial risk through prepaid capitation arrangements.
For certain specialty medical services covered by the Medicare program, the
Company is reimbursed for its direct costs plus an allocation of indirect costs
up to a regional limit. As the Company expands its specialty medical services,
the costs of care for these patients are expected to exceed the regional
reimbursement limits. As a result, the Company has submitted and will be
required to submit, further exception requests to recover the excess costs from
Medicare. There is no assurance the Company will be able to recover such excess
costs under pending or any future requests. The failure to recover these excess
costs in the future will adversely affect the Company's financial position and
results of operations. When PPS is fully implemented, the Company will no longer
be reimbursed on a cost basis under the Medicare program.
6
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The Company is subject to periodic audits by Medicare and Medicaid programs, and
the paying agencies for these programs have various rights and remedies against
the Company if they assert that the Company has overcharged the programs or
failed to comply with program requirements. Such payment agencies could seek to
require the Company to repay any overcharges or amounts billed in violations of
program requirements, or could make deductions from future amounts due to the
Company. Such agencies could also impose fines, criminal penalties or program
exclusions. Private pay sources also reserve rights to conduct audits and make
monetary adjustments. See "Risk of Adverse Effect of Healthcare Reform; Medicare
Prospective Payment System" and "Regulation".
Competition
The healthcare industry is highly competitive. The Company competes with a
variety of other companies in providing eldercare services. Certain competing
companies have greater financial and other resources and may be more established
in their respective communities than the Company. Competing companies may offer
newer or different centers or services than the Company and may thereby attract
the Company's customers who are either presently customers of its eldercare
centers or are otherwise receiving its eldercare services. As a result of the
Vitalink Transaction, HCR-Manor Care, a publicly traded owner of eldercare
centers that competes with the Company in certain markets, owns 586,240 shares
of Genesis Series G Cumulative Convertible Preferred Stock (the "Genesis
Preferred") which are convertible at the option of the holder into approximately
7,880,000 shares of the Company's Common Stock. Pursuant to the Vitalink Service
Contracts, the Company's NeighborCare pharmacy operations provide services to
HCR-Manor Care constituting approximately ten percent of the net revenues of
NeighborCare. See "Business - Competition."
Risks Associated with Recent Acquisitions and Acquisition Strategy
The Company has recently completed several acquisitions of eldercare businesses.
There can be no assurance that the Company will be able to realize expected
operating and economic efficiencies from its recent acquisitions or from any
future acquisitions or that such acquisitions will not adversely affect the
Company's results of operations or financial condition. In addition, there can
be no assurance that the Company will be able to locate suitable acquisition
candidates in the future, consummate acquisitions on favorable terms or
successfully integrate newly acquired businesses with the Company's operations.
The consummation of acquisitions likely will result in the incurrence or
assumption by the Company of additional indebtedness.
Year 2000 Compliance
The failure of the Company or third parties to be fully Year 2000 compliant for
essential systems and equipment by January 1, 2000 could result in interruptions
of normal business work operations. The Company's potential risks include: (i)
the inability to deliver patient care related services in the Company's
facilities and / or in non-affiliated facilities; (ii) the delayed receipt of
reimbursement from the federal or state governments, private payors or
intermediaries, (iii) the failure of security systems, elevators, heating
systems or other operational systems and equipment at the Company's facilities
and (iv) the inability to receive critical equipment and supplies from vendors.
Each of these events could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
2000 Compliance".
7
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PART I
ITEM 1: BUSINESS
General
Genesis Health Ventures, Inc. was incorporated in May 1985 as a Pennsylvania
corporation. As used herein, unless the context otherwise requires, "Genesis" or
the "Company" refers to Genesis Health Ventures, Inc. and subsidiaries.
Information included herein which describes the Company's operations after
October 10, 1997 (e.g. markets served, facilities information, personnel)
includes the Multicare operations; information included herein describing the
Company's historical results prior to October 10, 1997 (e.g.
occupancy rates and revenue sources) does not include the Multicare operations.
Genesis is a leading provider of healthcare and support services to the elderly.
The Company has developed the Genesis ElderCare(SM) delivery model of integrated
healthcare networks to provide cost-effective, outcome-oriented services to the
elderly. Through these integrated healthcare networks, Genesis provides basic
healthcare and specialty medical services to more than 175,000 customers,
including approximately 40,000 customers who are residents in eldercare
facilities. Genesis operates primarily in five regional markets in which over
11,100,000 people over the age of 65 reside. The networks include 326 eldercare
centers with approximately 42,200 beds; nine primary care physician clinics;
approximately 85 physicians, physician assistants and nurse practitioners; 11
medical supply distribution centers serving over 1,000 eldercare centers with
over 80,000 beds; an integrated NeighborCare(SM) pharmacy operation with over
$900,000,000 in annualized revenues, including 79 long-term care pharmacies
serving approximately 263,000 institutional beds; 34 community-based
pharmacies; infusion therapy services; and certified rehabilitation agencies
providing services through over 600 contracts. The Company also provides
diagnostic and hospitality services in selected markets and operates a group
purchasing organization. Genesis has concentrated its eldercare networks in five
geographic regions in order to achieve operating efficiencies, economies of
scale and significant market share. The five geographic markets that Genesis
principally serves are: New England Region (Massachusetts/Connecticut/New
Hampshire/Vermont/Rhode Island); Midatlantic Region (Greater
Philadelphia/Delaware Valley); Chesapeake Region (Southern Delaware/Eastern
Shore of Maryland/Baltimore, Maryland/Washington D.C./Virginia); Southern Region
(Central Florida); and Allegheny Region (West Virginia/Western
Pennsylvania/Eastern Ohio/Illinois/Wisconsin). The Company believes that it is
the largest operator of eldercare center beds in the states of New Hampshire,
Massachusetts, New Jersey, Pennsylvania, Maryland and West Virginia.
The Company's eldercare services focus on the central medical and physical
issues facing the more medically demanding elderly. By integrating the talents
of physicians with case management, comprehensive discharge planning and, where
necessary, home support services, the Company believes it provides
cost-effective care management to achieve superior outcomes and return customers
to the community. The Company believes that its orientation toward achieving
improved customer outcomes through its eldercare networks has resulted in
increased utilization of specialty medical services, high occupancy of available
beds, enhanced quality payor mix and a broader base of repeat customers.
Specialty medical services revenues have increased at a compound annual rate of
56% from the fiscal year ended September 30, 1994 to the fiscal year ended
September 30, 1998 and comprise 52% of the Company's revenues for the fiscal
year ended September 30, 1998. Specialty medical services typically generate
higher profit margins than basic healthcare services and are less capital
intensive.
The Company's long-term growth strategy is to enhance its existing eldercare
networks, establish new eldercare networks in markets it deems attractive and
broaden its array of high margin specialty medical services through internal
development and selected acquisitions. Consistent with its strategy, the Company
has made selected acquisitions of, and investments in, eldercare centers and
rehabilitation and pharmacy companies, including the August 28, 1998 Vitalink
Transaction. The Company has undertaken several initiatives to position itself
to compete in the current healthcare environment. These initiatives include: (i)
establishing a strategic division to develop clinical care protocols and monitor
the delivery and utilization of medical care; (ii) developing a clinical
administration and healthcare management information system; (iii) establishing
and marketing the Genesis ElderCare(SM) brand name and establishing Genesis
ElderCare (SM) toll-free telephone lines along with other trademarks, to
increase awareness of the Company's eldercare services in the healthcare market;
(iv) seeking strategic alliances with other healthcare providers to broaden the
Company's continuum of care; and (v) creating an independent eldercare advisory
board to formulate new and innovative approaches in the delivery of care.
8
<PAGE>
Basic Healthcare Services
Genesis operates 302 eldercare centers located in 16 states. The centers offer
three levels of care for their customers: skilled, intermediate and personal.
Skilled care provides 24-hour per day professional services of a registered
nurse; intermediate care provides less intensive nursing care; and personal care
provides for the needs of customers requiring minimal supervision and
assistance. Each eldercare center is supervised by a licensed healthcare
administrator and employs a Medical Director to supervise the delivery of
healthcare services to residents and a Director of Nursing to supervise the
nursing staff. The Company maintains a corporate quality assurance program to
monitor regulatory compliance and to enhance the standard of care provided in
each center.
In addition to programs to meet the healthcare needs of its customers, all
Genesis eldercare centers offer a variety of quality of life programs. These
include the Intergenerational Learning Program that enables residents to
function both as students and as instructors in programs with community schools,
as well as The Magic Mix Program that provides a supervised setting in which
children of working parents can interact with residents of the centers after
school. These programs have received recognition at both local and national
levels.
In eight of its eldercare centers, the Company operates Genesis ElderCare Focus
programs which are dedicated to meeting the special medical, emotional and
psychological needs of Alzheimer's patients. The Focus programs were developed
in conjunction with the Dementia Research Clinic at the Johns Hopkins University
School of Medicine. These units provide an environment that is designed or
modified to assist those with cognitive loss. Clinical experts have experienced
significant success and produced benefits to customers served in both
Alzheimer's day services and dedicated residential units.
The following table sets forth, for the periods indicated, information regarding
the Company's average number of beds in service and the average occupancy levels
at its eldercare centers during the respective fiscal years.
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Beds in Service: (1)
Owned and Leased Facilities 15,137 15,132 9,429
Managed and Jointly-Owned Facilities 24,234 6,101 5,030
Occupancy Based on Average Beds in Service:
Owned and Leased Facilities 91% 91% 93%
Managed and Jointly-Owned Facilities 92% 92% 93%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Excludes beds in facilities which were unavailable for occupancy due to
renovations.
Specialty Medical Services
The Company emphasizes the delivery of specialty medical services which
typically requires smaller capital investment and generates higher profit
margins than providing basic healthcare services. The Company provides the
specialty medical services described below.
9
<PAGE>
Institutional Pharmacy and Medical Supply Services. The Company, through its
NeighborCare (SM) pharmacy subsidiaries which have over $900,000,000 in
annualized revenues, provides pharmacy and other services, including infusion
therapy and medical supplies and equipment, to eldercare centers it operates, as
well as to independent healthcare providers by contract. The pharmacy services
provided in these settings are tailored to meet the needs of the institutional
customer. These services include highly specialized packaging and dispensing
systems, computerized medical records processing and 24-hour emergency services.
The Company's institutional pharmacy and medical supply services were developed
to provide the products and support services required in the healthcare market.
Institutional pharmacy services are designed to help assure quality of care and
to control costs at the facilities served. Medical supply services are designed
to assure availability and control through maintenance of a comprehensive
inventory, extensive delivery services and special ordering and tracking
systems. The Company also provides pharmacy consulting services to assure proper
and effective drug therapy. The Company provides these services through 79
institutional pharmacies (of which one is jointly-owned) and 11 distribution
centers located in its various market areas. In addition, the Company operates
34 community-based pharmacies which are located in or near medical centers,
hospitals and physician office complexes. The community-based pharmacies provide
prescription and over-the-counter medications and certain medical supplies, as
well as personal service and consultation by licensed professional pharmacists.
Approximately 89% of the sales attributable to all pharmacy operations in Fiscal
1998 were generated through external contracts with independent healthcare
providers with the balance attributable to centers owned or leased by the
Company.
Rehabilitation Therapy. The Company provides an extensive range of
rehabilitation therapy services, including speech pathology, physical therapy
and occupational therapy, through seven certified rehabilitation agencies in all
five of its regional market concentrations. These services are provided by
approximately 1,800 licensed rehabilitation therapists and assistants employed
by Genesis to substantially all of the eldercare centers the Company operates,
as well as by contract to healthcare facilities operated by others.
Subacute Care Programs. The Company has established and actively markets
programs for elderly and other customers who require subacute levels of medical
care. These programs include ventilator care, intravenous therapy, post-surgical
recovery, respiratory management, orthopedic or neurological rehabilitation,
terminal care and various forms of coma, pain and wound management. Private
insurance companies and other third party payors, including certain state
Medicaid programs, have recognized that treating customers requiring subacute
medical care in centers such as those operated by Genesis is a cost-effective
alternative to treatment in an acute care hospital. The Company provides such
care at rates that the Company believes are substantially below the rates
typically charged by acute care hospitals for comparable services.
Other Services. The Company employs or has consulting arrangements with
approximately 85 physicians, physician assistants and nurse practitioners who
are primarily involved in designing and administering clinical programs and
directing patient care. The Company also provides an array of other specialty
medical services in certain parts of its eldercare networks, including portable
x-ray and other diagnostic services; home healthcare services; and hospitality
services such as dietary, housekeeping, laundry, plant operations and facilities
management services.
Management Services and Other
Management Services. The Company provides management services to 189 eldercare
centers pursuant to management agreements that provide generally for the
Company's day-to-day responsibility for the operation and management of the
centers. In turn, Genesis receives management fees, depending on the agreement,
computed as either an overall fixed fee, a fixed fee per customer, a percentage
of net revenues of the center plus an incentive fee, or a percentage of gross
revenues of the center with some incentive clauses. The various management
agreements, including option periods, terminate between 1999 and 2017. The
Company has extended various mortgage and other loans to certain facilities
under management contract. See "Notes to Consolidated Financial Statements -
Footnote 9 Notes Receivable and Other Investments."
10
<PAGE>
Genesis provides development services for a fee in an amount equal to five
percent of the total cost of developing and completing facilities developed by
Adult Community Total Services, Inc. The contract extends through December 2002
and Genesis is guaranteed a minimum annual development fee of $1,500,000.
Group Purchasing. The Company's subsidiary, The Tidewater Healthcare Shared
Services Group, Inc. ("Tidewater"), is one of the largest group purchasing
companies in the Midatlantic region. Tidewater provides purchasing and shared
service programs specially designed to meet the needs of eldercare centers and
other long-term care facilities. Tidewater's services are contracted to
approximately 2,200 members with over 236,000 beds in 44 states and the District
of Columbia.
Strategic Clinical Initiatives
The Company has undertaken several initiatives to position itself to compete
effectively in the current healthcare environment. The Company has established a
strategic division which is responsible for developing clinical care protocol
and monitoring the delivery and utilization of medical care. The Company has
also developed a clinical administration and healthcare management information
system to monitor and measure clinical and patient outcome data for use by
healthcare providers and the Company. The Company is also seeking strategic
alliances with selected providers in order to further the continuum of care,
increase market share and customer acceptance and create strategic affiliations
for negotiating with payors in a managed care environment. In addition to these
initiatives, the Company has established toll-free telephone lines and
consolidated its core business under the Genesis ElderCare(SM) brand name in an
effort to increase the Company's visibility among current and potential
customers, payors and other healthcare providers. The Company has also created
an independent eldercare advisory board composed of individuals with
distinguished credentials in geriatric care to formulate new and innovative
approaches in the delivery of care.
Revenue Sources
The Company derives its basic healthcare and specialty medical revenue from
private pay sources, state Medicaid programs and Medicare. The Company
classifies payments from persons or entities other than the government as
private pay and other revenue. The private pay and other classification also
includes revenues from commercial insurers, health maintenance organizations and
other charge-based payment sources. Blue Cross and Veterans Administration
payments are included in private pay and other revenues and are made pursuant to
renewable contracts negotiated with these payors. The private pay rates charged
by the Company are influenced primarily by the rates charged by other providers
in the local market and by Medicaid and Medicare reimbursement rates. Specialty
medical revenues are usually reimbursed under casualty and health insurance
coverages. The acuity levels for these insurance patients are generally higher
and require additional staff and increased utilization of facility resources,
resulting in higher payment rates. Individual cases are either negotiated on a
case by case basis with the insurer or the rates are prescribed through managed
care contract provisions.
Medicare is a federally funded and administered health insurance program that
consists of Parts A and B. Participation in Part B is voluntary and is funded in
part through the payment of premiums. Subject to certain limitations, benefits
under Part A include inpatient hospital services, skilled nursing in an
eldercare center and medical services such as physical, speech and occupational
therapy, certain pharmaceuticals and medical supplies. Part B provides coverage
for physician services. Part B also reimburses for medical services with the
exception of pharmaceutical services. Medicare benefits are not available for
intermediate and custodial levels of care; however, medical and physician
services furnished to such patients may be reimbursable under Part B.
11
<PAGE>
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which has adversely impacted the
Company. The changes have limited, and are expected to continue to limit,
payment increases under these programs. Also, the timing of payments made under
the Medicare and Medicaid programs is subject to regulatory action and
governmental budgetary constraints; in recent years, the time period between
submission of claims and payment has increased. Implementation of the Company's
strategy to expand specialty medical services to independent providers should
reduce the impact of changes in the Medicare and Medicaid reimbursement programs
on the Company as a whole. Within the statutory framework of the Medicare and
Medicaid programs, there are substantial areas subject to administrative rulings
and interpretations which may further affect payments made under those programs.
Further, the federal and state governments may reduce the funds available under
those programs in the future or require more stringent utilization and quality
reviews of eldercare centers or other providers. There can be no assurances that
adjustments from Medicare or Medicaid audits will not have a material adverse
effect on the Company.
Pursuant to the Balanced Budget Act, commencing with cost reporting periods
beginning on July 1, 1998, PPS began to be phased in for skilled nursing
facilities at a per diem rate for all covered Part A skilled nursing facility
services as well as many services for which payment may be made under Part B
when a beneficiary who is a resident of a skilled nursing facility receives
covered skilled nursing facility care. The consolidated per diem rate is
adjusted based upon the RUG. In addition to covering skilled nursing facility
services, this consolidated payment will also cover rehabilitation and
non-rehabilitation ancillary services. Physician services, certain nurse
practitioner and physician assistant services, among others, are not included in
the per diem rate. For the first three cost reporting periods beginning on or
after July 1, 1998, the per diem rate will be based on a blend of a facility
specific rate and a federal per diem rate. In subsequent periods, and for
facilities first receiving payments for Medicare services on or after October 1,
1995, the federal per diem rate will be used without any facility specific
blending.
The Balanced Budget Act also required consolidated billing for skilled nursing
facilities. Under the Balanced Budget Act, the skilled nursing facility must
submit all Medicare claims for Part A and Part B services received by its
residents with the exception of physician, nursing, physician assistant and
certain related services, even if such services were provided by outside
suppliers. Medicare will pay the skilled nursing facilities directly for all
services on the consolidated bill and outside suppliers of services to residents
of the skilled nursing facilities must collect payment from the skilled nursing
facility. Although consolidated billing was scheduled to begin July 1, 1998 for
all services, it has been delayed until further notice for beneficiaries in a
Medicare Part A stay in a skilled nursing facility not yet using PPS for the
Medicare Part B Stay.
Under the Part A reimbursement methodology applicable to periods prior to the
implementation of PPS, each eldercare center receives an interim payment during
the year which is adjusted to reflect actual allowable direct and indirect costs
of services based on the submission of a cost report at the end of each year.
For services not billed through each eldercare center, the Company's specialty
medical operations bill Medicare directly for nutritional support services,
infusion therapy, certain medical supplies and equipment, physician services and
certain therapy services as provided. Medicare payments for these services may
be based on reasonable cost charges or a fixed-fee schedule determined by
Medicare. As the Company is reimbursed for its direct costs plus an allocation
of indirect costs up to a regional limit, to the extent that the Company expands
its specialty medical services, the costs of care for these patients is expected
to exceed the regional reimbursement limits. As a result, the Company has
submitted and will be required to submit further exception requests to recover
such excess costs under pending or any requests from Medicare. There can be no
assurances that the Company will be able to recover such excess costs under
pending or future requests. The failure to recover these excess costs in the
future would adversely affect the Company's financial position and results of
operations. Medicare payments for these services may be based on reasonable cost
charges or a fixed-fee schedule determined by Medicare.
12
<PAGE>
Medicaid is the state administered reimbursement program that covers both
skilled and intermediate long-term care. Although Medicaid programs vary from
state to state, typically they provide for payment for services including
nursing facility services, physician's services, therapy services and
prescription drugs, up to established ceilings, at rates based upon cost
reimbursement principles. Reimbursement rates are typically determined by the
state from cost reports filed annually by each center, on a prospective or
retrospective basis. In a prospective system, a rate is calculated from
historical data and updated using an inflation index. The resulting prospective
rate is final, but in some cases may be adjusted pursuant to an audit. In this
type of payment system, center cost increases during the rate year do not affect
payment levels in that year. In a retrospective system, final rates are based on
reimbursable costs for that year. An interim rate is calculated from previously
filed cost reports, and may include an inflation factor to account for the time
lag between the final cost report settlement and the rate period. Consequently,
center cost increases during any year may affect revenues in that year. Certain
states are scheduled to convert, or have recently converted, from a
retrospective system, which generally recognizes only two or three levels of
care, to a case mix prospective pricing system, pursuant to which payment to a
center for patient services directly considers the individual patient's
condition and need for services. Moreover, the Balanced Budget Act also repealed
the Boren Amendment which required Medicaid payments to nursing facilities to be
"reasonable and adequate" to cover the costs of efficiently and economically
operated facilities. Under the Balanced Budget Act, states must now use a public
notice and comment process for determining Medicaid rates, rate methodology and
justifications. It is unclear what the impact of the Balanced Budget Act will
have on the Company. The Company employs specialists in reimbursement at the
corporate level to monitor both Medicaid and Medicare regulatory developments to
comply with all reporting requirements and to insure appropriate payments.
The following table reflects the allocation of customer service revenues among
these sources of revenue.
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------
Private pay and other 45% 39% 39% 38% 41%
Medicaid 35 37 36 41 43
Medicare 20 24 25 21 16
- ---------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
- ---------------------------------------------------------------------------
See "Cautionary Statements Regarding Forward Looking Statements."
Marketing
Marketing for eldercare centers is focused at the local level and is conducted
primarily by the center administrator and its admissions director who call on
referral sources such as doctors, hospitals, hospital discharge planners,
churches and various community organizations. In addition to those efforts, the
Company's marketing objective is to maintain public awareness of the eldercare
center and its capabilities. The Company takes advantage of its regional
concentrations in its marketing efforts, where appropriate, through consolidated
marketing programs which benefit more than one center.
Genesis markets specialty medical services to its managed eldercare centers, as
well as to independent healthcare providers, in addition to providing such
services to its owned, leased and affiliated eldercare centers. The Company
markets its rehabilitation therapy and institutional pharmacy and medical supply
services through a direct sales force which primarily calls on eldercare
centers, hospitals, clinics and home health agencies. The corporate business
development department, through regional managers, markets the Company's
subacute program directly to insurance companies, managed care organizations and
other third party payors. In addition, the marketing department supports the
eldercare centers in developing promotional materials and literature focusing on
the Company's philosophy of care, services provided and quality clinical
standards. See "Governmental Regulation" for a discussion of the federal and
state laws which limit financial and other arrangements between healthcare
providers.
13
<PAGE>
In Fiscal 1996, the Company announced a consolidation of its core business under
the name Genesis ElderCare (SM). The Genesis ElderCare logo and service mark
have been featured in a series of print advertisements in publications serving
the regional markets in which the Company operates. The Company's marketing of
Genesis ElderCare is aimed at increasing awareness among decision makers in key
professional and business audiences. The Company is using advertising, including
the Company's toll free ElderCare Lines, to promote its brand name in trade,
professional and business publications and to promote services directly to
consumers.
The consumer advertising effort was significantly increased beginning in January
1998 to build awareness of the Genesis ElderCare brand among family caregivers
and elders living in the community. The advertising effort, which is
concentrated in the Company's key geographic markets, uses television, consumer
magazines, and direct mail to motivate consumers who need any of the Company's
services to call one of the Company's regional toll-free ElderCare Lines where
they are directed to the appropriate resource.
Personnel
At November 30, 1998, Genesis and its subsidiaries (including Multicare)
employed over 45,000 people, including approximately 34,500 full-time and 10,000
part-time employees. Approximately 20% of these employees are physicians and
nursing and professional staff. Approximately 15,000 of these employees are
employed by Multicare.
The Company currently has collective bargaining agreements which relate to 61
facilities, including 27 facilities operated by Multicare. The agreements expire
at various dates from 1998 through 2001 and cover approximately 5,000 employees.
In addition, certain of the Company's facilities have been subject to an
aggressive union organizing campaign. The Company believes that its relationship
with its employees is generally good.
Employee Training and Development
Genesis believes that nursing and professional staff retention and development
has been and continues to be a critical factor in the successful operation of
the Company. In response to this challenge, a compensation program which
provides for annual merit reviews as well as financial and quality of care
incentives has been implemented to promote center staff motivation and
productivity and to reduce turnover rates. Management believes that the
Company's wage rates for professional nursing staff are commensurate with market
rates. The Company also provides employee benefit programs which management
believes, as a package, exceed industry standards. The Company has not
experienced any significant difficulty in attracting or retaining qualified
personnel.
In addition, Genesis has established an internal training and development
program for both nurse assistants and nurses. Employee training is emphasized by
the Company through a variety of in-house programs as well as a tuition
reimbursement program. The Company has established, company-wide, the Genesis
Nursing Assistant Specialist Program. This program is offered on a joint basis
with community colleges. Classes are held on the employees' time, last for
approximately six months and provide advanced instruction in nursing care. The
Company pays the tuition. When all of the requirements for class participation
have been met through attendance, discussion and examinations, the nurses aide
graduates and is awarded the title of Nursing Assistant Specialist and receives
a salary adjustment. The Company has maintained a retention rate of 77% since
1990 of the nurses aide graduates. Approximately 1,450 nurses aides have
graduated from the Genesis Nursing Assistant Specialist Program and received an
increase in salary. As the nurse aide continues through the career ladder, the
Company continues to provide incentives. At the next level, Senior Nursing
Assistant Specialist, the employee receives another increase in salary and
additional tuition reimbursement of up to $2,250 toward becoming a Licensed
Practical Nurse ("LPN") or Registered Nurse ("RN") and at the Senior Nursing
Assistant Specialist Coordinator level, tuition reimbursement increases to a
maximum of $3,000 per year towards a nursing degree.
14
<PAGE>
The Company began a junior level management and leadership training program in
1990 referred to as the Pilot Light Program. The target audience for this
training is RN's and LPN's occupying charge nurse positions within the Company's
nursing centers as well as junior level managers throughout the Genesis
networks. Over 800 participants have graduated from this program.
Governmental Regulation
The federal government and all states in which the Company operates regulate
various aspects of the Company's business. The Company's eldercare centers are
subject to certain federal statutes and regulations and to statutory and
regulatory licensing requirements by state and local authorities. All Genesis
eldercare centers are currently so licensed. In addition, eldercare centers are
subject to various local building codes and other ordinances.
All of the Company's eldercare centers and healthcare services, to the extent
required, are licensed under applicable law. All eldercare centers and
healthcare services, or practitioners providing the services therein, are
certified or approved as providers under one or more of the Medicaid, Medicare
or Veterans Administration programs. Licensing, certification and other
applicable standards vary from jurisdiction to jurisdiction and are revised
periodically. State and local agencies survey all eldercare centers on a regular
basis to determine whether such centers are in compliance with governmental
operating and health standards and conditions for participation in government
sponsored third party payor programs. The Company believes that its centers are
in substantial compliance with the various Medicare and Medicaid regulatory
requirements applicable to them. However, in the ordinary course of its
business, the Company receives notices of deficiencies for failure to comply
with various regulatory requirements. Genesis reviews such notices and takes
appropriate corrective action. In most cases, Genesis and the reviewing agency
will agree upon the measures to be taken to bring the center into compliance
with regulatory requirements. In some cases or upon repeat violations, the
reviewing agency may take various adverse actions against a provider, including
the imposition of fines, temporary suspension of admission of new patients to
the center, suspension or decertification from participation in the Medicare or
Medicaid programs and, in extreme circumstances, revocation of a center's
license. These actions may adversely affect the eldercare centers' ability to
continue to operate, the ability of the Company to provide certain services, and
eligibility to participate in the Medicare, Medicaid or Veterans Administration
programs or to receive payments from other payors. Additionally, actions taken
against one center may subject other centers under common control or ownership
to adverse measures, including loss of licensure or eligibility to participate
in Medicare and Medicaid programs. Certain of the Company's providers have
received notices in the past from state agencies that, as a result of certain
alleged deficiencies, the agency was taking steps to decertify the centers from
participation in Medicare and Medicaid programs. Except as described below, in
all cases, such deficiencies were remedied before any providers were
decertified. On July 14, 1998, the Company announced that it received notice
from NewCourtland, owner of eight nursing centers in the Philadelphia area, of
the termination of its management agreements for these centers effective July
31, 1998. This notice follows the revocation on June 25, 1998 of the operating
license at one of the NewCourtland Centers. The center had a long-standing
history of regulatory compliance difficulties dating back many years prior to
Genesis' management.
All but 30 of the Genesis eldercare owned and leased centers provide skilled
nursing services and are currently certified to receive benefits provided under
Medicare for these services. Additionally, all Genesis and Multicare eldercare
centers are currently certified to receive benefits under Medicaid. Both initial
and continuing qualifications of an eldercare center to participate in such
programs depend upon many factors including accommodations, equipment, services,
patient care, safety, personnel, physical environment, and adequate policies,
procedures and controls.
15
<PAGE>
Under the various Medicaid programs, the federal government supplements funds
provided by the participating states for medical assistance to "medically
indigent" persons. The programs are administered by the applicable state welfare
or social service agencies. Although Medicaid programs vary from state to state,
traditionally they have provided for the payment of certain expenses, up to
established limits, at rates based generally on cost reimbursement principles.
Most states in which Genesis operates have adopted Certificate of Need or
similar laws which generally require that a state agency approve certain
acquisitions and determine that the need for certain bed additions, new
services, and capital expenditures or other changes exist prior to the
acquisition or addition of beds or services, the implementation of other
changes, or the expenditure of capital. State approvals are generally issued for
a specified maximum expenditure and require implementation of the proposal
within a specified period of time. Failure to obtain the necessary state
approval can result in the inability to provide the service, to operate the
centers, to complete the acquisition, addition or other change, and can also
result in the imposition of sanctions or adverse action on the center's license
and adverse reimbursement action.
The Company is also subject to federal and state laws which govern financial and
other arrangements between healthcare providers. These laws often prohibit
certain direct and indirect payments or fee-splitting arrangements between
healthcare providers that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. These laws include the "anti-kickback" provisions of the
federal Medicare and Medicaid programs, which prohibit, among other things,
knowingly and willfully soliciting, receiving, offering or paying any
remuneration (including any kickback, bribe or rebate) directly or indirectly in
return for or to induce the referral of an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. These laws
also include the "Stark legislations" which prohibit, with limited exceptions,
the referral of patients by physicians for certain services, including home
health services, physical therapy and occupational therapy, to an entity in
which the physician has a financial interest. In addition, some states restrict
certain business relationships between physicians and other providers of
healthcare services. Many states prohibit business corporations from providing,
or holding themselves out as a provider of medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of licensure
or eligibility to participate in reimbursement programs and civil and criminal
penalties. These laws vary from state to state, are often vague and have seldom
been interpreted by the courts or regulatory agencies. From time to time, the
Company has sought guidance as to the interpretation of these laws; however,
there can be no assurance that such laws will ultimately be interpreted in a
manner consistent with the practices of the Company. Although the Company has
contractual arrangements with some healthcare providers to which the Company
pays fees for services rendered or products provided, the Company believes that
its practices are not in violation of these laws. The Company cannot accurately
predict whether enforcement activities will increase or the effect of any such
increase on its business. There have also been a number of recent federal and
state legislative and regulatory initiatives concerning reimbursement under the
Medicare and Medicaid programs. In particular, the federal government has issued
recent fraud alerts concerning double billing, home health services and the
provision of medical supplies to nursing facilities. Accordingly, it is
anticipated that these areas may come under closer scrutiny by the government.
The Company cannot accurately predict the impact of any such initiatives. See
"Cautionary Statements Regarding Forward Looking Statements."
Competition
The Company competes with a variety of other companies in providing healthcare
services. Certain competing companies have greater financial and other resources
and may be more established in their respective communities than the Company.
Competing companies may offer newer or different centers or services than the
Company and may thereby attract the Company's customers who are either presently
residents of its eldercare centers or are otherwise receiving its healthcare
services. As a result of the Vitalink Transaction, HCR-Manor Care, a publicly
traded owner of eldercare centers that competes with the Company in certain
markets, owns 586,240 shares of Genesis Preferred which are convertible at the
option of the holder into approximately 7,880,000 shares of the Company's Common
Stock. Pursuant to the Vitalink Service Contracts, the Company's NeighborCare
pharmacy operations provide services to HCR-Manor Care constituting
approximately ten percent of the net revenues of NeighborCare.
16
<PAGE>
The Company operates eldercare centers in 16 states. In each market, the
Company's eldercare centers may compete for customers with rehabilitation
hospitals, subacute units of hospitals, skilled or intermediate nursing centers
and personal care or residential centers which offer comparable services to
those offered by the Company's centers. Certain of these providers are operated
by not-for-profit organizations and similar businesses which can finance capital
expenditures on a tax-exempt basis or receive charitable contributions
unavailable to the Company. In competing for customers, a center's local
reputation is of paramount importance. Referrals typically come from acute care
hospitals, physicians, religious groups, other community organizations, health
maintenance organizations and the customer's families and friends. Members of a
customer's family generally actively participate in selecting an eldercare
center. Competition for subacute patients is intense among hospitals with
long-term care capability, rehabilitation hospitals and other specialty
providers and is expected to remain so in the future. Important competitive
factors include the reputation in the community, services offered, the
appearance of a center and the cost of services.
Genesis competes in providing specialty medical services with a variety of
different companies. Generally, this competition is national, regional and local
in nature. The primary competitive factors in the specialty medical services
business are similar to those in the eldercare center business and include
reputation, the quality of clinical services, responsiveness to patient needs,
and the ability to provide support in other areas such as third party
reimbursement, information management and patient record-keeping.
Insurance
Genesis carries property and general liability insurance, professional liability
insurance, and medical malpractice insurance coverage in amounts deemed adequate
by management. However, there can be no assurance that any current or future
claims will not exceed applicable insurance coverage. Genesis also requires that
physicians practicing at its eldercare centers carry medical malpractice
insurance to cover their individual practices.
17
<PAGE>
ITEM 2: PROPERTIES
Facilities
The following table provides information by state regarding the eldercare
centers owned, leased and managed by Genesis as of November 30, 1998. Included
in Managed Centers are 116 jointly-owned facilities with 13,271 beds. Member
Centers consist of independently owned facilities that, for a fee, have access
to many of the resources and capabilities of the Genesis Eldercare Networks,
including participation in Genesis' managed care contracts, preferred provider
arrangements and group purchasing arrangements. These centers typically purchase
an array of ancillary services from Genesis.
<TABLE>
<CAPTION>
Wholly-Owned
Centers Member Centers Leased Centers Managed Centers Total
Centers Beds Centers Beds Centers Beds Centers Beds Centers Beds
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania 16 2,228 5 645 4 503 30 4,100 55 7,476
Massachusetts 8 1,092 1 123 1 100 39 5,138 49 6,453
Maryland 13 2,089 11 2,041 7 990 6 907 37 6,027
New Jersey 12 1,571 1 178 4 616 26 3,630 43 5,995
Florida 4 598 - - 12 1,409 12 1,308 28 3,315
Connecticut 4 615 1 190 1 120 13 1,866 19 2,791
West Virginia - - - - 2 180 23 1,983 25 2,163
Virginia 2 421 1 200 4 670 2 175 9 1,466
New Hampshire 8 808 - - 5 440 - - 13 1,248
Delaware 4 522 4 539 - - 1 158 9 1,219
Ohio - - - - - - 14 1,128 14 1,128
Illinois - - - - - - 10 968 10 968
Wisconsin - - - - - - 7 941 7 941
Rhode Island - - - - - - 3 373 3 373
North Carolina - - - - - - 2 340 2 340
Vermont 2 256 - - - - 1 58 3 314
- -----------------------------------------------------------------------------------------------------------------
Totals 73 10,200 24 3,916 40 5,028 189 23,073 326 42,217
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company believes that all of its centers are well maintained and are in a
suitable condition for the conduct of its business.
ITEM 3: LEGAL PROCEEDINGS
Genesis is a party to litigation arising in the ordinary course of business.
Genesis does not believe the results of such litigation, even if the outcome is
unfavorable to the Company, would have a material adverse effect on its
financial position. See "Cautionary Statements Regarding Forward Looking
Statements."
On or after April 29, 1998, certain shareholders of Vitalink Pharmacy Services,
Inc. ("Vitalink") (the "Plaintiffs") filed four separate actions in Delaware
state court against Vitalink, certain of its officers and directors (the
"Individual Defendants"), Genesis and HCR-Manor Care (collectively, the
"Defendants") alleging, among other things, that Vitalink, the Individual
Defendants and HCR-Manor Care breached certain duties owed to the Plaintiffs in
connection with the Merger Agreement and certain of the transactions
contemplated thereby, and that Genesis has knowingly aided and abetted that
alleged breach (the "Stockholders Litigation"). In their complaints, the
Plaintiffs sought damages and preliminary and permanent relief to enjoin the
Defendants for consummating the Merger and Memorandum of Understanding pursuant
to which they agreed in principle, subject to the execution of a written
Stipulation of Settlement and approval by the court, to settle the Stockholders
Litigation by (a) allowing the Series G Cumulative Convertible Preferred Stock,
par value $.01 per share (the "Genesis Preferred") received by the Vitalink
minority stockholders in connection with the Merger to become freely
transferable beginning August 28, 1999 and (b) including certain additional
disclosures in the proxy statement/prospectus related to the Vitalink
Transaction.
18
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 26, 1998, the Company held a Special Meeting of its shareholders.
Proxies were solicited and the Special Meeting held to consider and act upon the
following matters:
(1) The Merger Agreement, and the transactions contemplated thereby, including
the issuance of shares of Genesis Preferred received 19,480,818 votes for
approval, 366,318 against approval and 133,571 abstentions.
(2) The authorization of the Genesis Board, in its discretion, to vote upon
such other business as may properly come before the Special Meeting and any
adjournment or postponement thereof, including, without limitation, a
motion to adjourn the Special Meeting to another time or place for the
purpose of soliciting additional proxies in order to approve and adopt the
transactions contemplated by the Merger Agreement or otherwise received
14,241,042 votes for approval, 4,480,914 against approval and 1,284,751
abstentions.
19
<PAGE>
ITEM 4.1: EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Michael R. Walker 50 Chairman and Chief Executive Officer
Richard R. Howard 49 Vice Chairman and Director
David C. Barr 48 Vice Chairman and Chief Operating Officer
Michael G. Bronfein 43 President, NeighborCare Pharmacies
George V. Hager, Jr. 42 Senior Vice President and Chief Financial Officer
Maryann Timon 45 Senior Vice President, Managed Care
Marc D. Rubinger 49 Senior Vice President and Chief Information Officer
Barbara J. Hauswald 39 Vice President and Treasurer
James V. McKeon 34 Vice President and Corporate Controller
</TABLE>
Michael R. Walker is the founder of the Company and has served as Chairman and
Chief Executive Officer of the Company since its inception. In 1981, Mr. Walker
co-founded Health Group Care Centers ("HGCC"). At HGCC, he served as Chief
Financial Officer and, later, as President and Chief Operating Officer. Prior to
its sale in 1985, HGCC operated nursing homes with 4,500 nursing beds in 12
states. From 1978 to 1981, Mr. Walker was the Vice President and Treasurer of
AID Healthcare Centers, Inc. ("AID"). AID, which owned and operated 20 nursing
centers, was co-founded in 1977 by Mr. Walker as the nursing home division of
Hospital Affiliates International. Mr. Walker holds a Master of Business
Administration degree from Temple University and a Bachelor of Arts in Business
Administration from Franklin and Marshall College. Mr. Walker has served as
Chairman of the Board of Trustees of ElderTrust since its inception in January
1998.
Richard R. Howard has served as a director of the Company since its inception,
as Vice President of Development from September 1985 to June 1986, as President
and Chief Operating Officer from June 1986 to April 1997, as President from
April 1997 to November 1998 and as Vice Chairman since November 1998. Mr.
Howard's background in healthcare includes two years as the Chief Financial
Officer of HGCC. Mr. Howard's experience also includes over ten years with
Fidelity Bank, Philadelphia, Pennsylvania and one year with Equibank,
Pittsburgh, Pennsylvania. Mr. Howard is a graduate of the Wharton School,
University of Pennsylvania, where he received a Bachelor of Science degree in
Economics in 1971.
David C. Barr has served as Executive Vice President of the Company since
October 1988, as Chief Operating Officer since April 1997 and as Vice Chairman
since November 1998. Prior to joining Genesis, Mr. Barr was a principal of a
private consulting firm, Kane Maiwurm Barr, Inc., which provided management
consulting for small and medium-sized firms. Prior to forming this firm, he
served as Executive Vice President of Allegheny Beverage Corporation, a service
conglomerate. During 1984 and 1985, Mr. Barr served with Equibank, Pittsburgh,
Pennsylvania, where he held several positions including Executive Vice President
of Corporate Banking. Mr. Barr graduated in 1972 from the University of Miami
with a Bachelor of Science degree in Accounting.
Michael G. Bronfein joined the Company in June 1996 as the President of
NeighborCare, which was acquired by Genesis in June 1996. Prior to joining
NeighborCare in 1991, Mr. Bronfein held the position of Senior Vice President
and Head of Commercial Finance Lending for Signet Banking Corporation in
Maryland, Virginia and Washington, D.C. In addition to his position with the
Company, Mr. Bronfein serves as the Chairman of the Board of Health Objects
Corporation and on the National Board of Advisors - University of Maryland
School of Pharmacy. Mr. Bronfein received a Bachelors of Science Degree in
Accounting from the University of Baltimore. He is a certified public accountant
and is a member of the AICPA and MACPA.
20
<PAGE>
George V. Hager, Jr. has served the Company as Senior Vice President and Chief
Financial Officer since February 1994. Mr. Hager joined the Company in July 1992
as Vice President and Chief Financial Officer. Mr. Hager was previously partner
in charge of the healthcare practice for KPMG Peat Marwick LLP in the
Philadelphia office. Mr. Hager began his career at KPMG Peat Marwick LLP in 1979
and has over 15 years of experience in the healthcare industry. Mr. Hager
received a Bachelor of Arts degree in Economics from Dickinson College in 1978
and a Master of Business Administration degree from Rutgers Graduate School of
Management. He is a certified public accountant and a member of the AICPA and
PICPA.
Maryann Timon has served as Senior Vice President for Managed Care since May
1996. From January 1995 through May 1996 she served as Corporate Vice President
of the Managed Care Division. Ms. Timon joined the Company in December 1990 to
form and serve as President of a wholly-owned subsidiary, Healthcare Services
Network. Ms. Timon was previously President of Mercy Ventures, Inc., a
five-company healthcare specialty group owned by Mercy Medical Center in
Baltimore, Maryland. Ms. Timon has 25 years of experience providing eldercare
healthcare services. Ms. Timon received an Associate Degree in Applied Science
in Nursing in 1973 from the State University of New York at Canton, a Bachelor
of Science Degree in Nursing in 1976 from the State University of New York at
Utica/Rome and a Master of Gerontological Nursing Degree in 1978 from the
University of Rochester.
Marc D. Rubinger has served as Senior Vice President and Chief Information
Officer since April 1997. From November 1995 to April 1997, Mr. Rubinger served
as Vice President and Chief Information Officer. Prior to joining the Company,
Mr. Rubinger served as General Manager-Decision Support Systems of Shared
Medical Systems. From 1975 through 1986, Mr. Rubinger was with Ernst & Young in
their national healthcare consulting practice, most recently as a partner. Mr.
Rubinger received a Bachelor of Arts degree in Bioscience from Binghamton
University in 1971 and a Masters of Health Administration and Planning from The
George Washington University in 1973.
Barbara J. Hauswald has served as Vice President and Treasurer since April 1998.
Prior to joining the Company, Ms. Hauswald served as First Vice President in the
Health Care Banking Department of Mellon Bank N.A. Ms. Hauswald has over 16
years of commercial banking experience. She received a Bachelor of Science
degree in Commerce in 1981 from the University of Virginia.
James V. McKeon has served as Vice President and Corporate Controller of Genesis
since April 1997. Mr. McKeon joined the Company in June 1994 as Director of
Financial Reporting and Investor Relations and served as Vice President of
Finance and Investor Relations from November 1995 to April 1997. From September
1986 until June 1994, Mr. McKeon was employed by KPMG Peat Marwick LLP, most
recently as Senior Manager. He received a Bachelor of Science degree in
Accountancy from Villanova University in 1986. Mr. McKeon is a certified public
accountant and a member of the AICPA and PICPA.
21
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table indicates the high and low sale prices per share, as
reported on the New York Stock Exchange.
Calendar Year High Low
1998
First Quarter $39.75 $24.88
Second Quarter $28.38 $21.25
Third Quarter $25.50 $11.06
Fourth Quarter * $15.00 $7.81
1997
First Quarter $37.87 $28.25
Second Quarter $37.50 $25.38
Third Quarter $39.75 $32.38
Fourth Quarter $39.75 $21.75
* Through December 14, 1998
As of December 14, 1998, 35,227,558 shares of Common Stock were held of record
by 722 shareholders. The Company has not paid any cash dividends on its Common
Stock since its inception and does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future. Certain of the Company's outstanding
loans contain covenants which limit the Company's ability to declare dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements".
22
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
(in thousands, except per share data)
Net revenues $1,405,305 $1,099,823 $ 671,469 $486,393 $388,616
Operating income before capital costs* 134,690 184,868 127,024 93,253 69,373
Earnings (loss) before income taxes,
extraordinary items and cumulative effect
of an accounting change (30,479) 75,232 58,086 40,296 27,710
Earnings (loss) before extraordinary items
and cumulative effect of an accounting
change (22,321) 48,144 37,169 25,531 17,691
Net income (loss) available to common shareholders (25,900) 47,591 37,169 23,608 17,673
Per common share data (Diluted):
Earnings (loss) before extraordinary items
and cumulative effect of an accounting
change $ (0.68) $ 1.34 $ 1.29 $ 1.03 $ 0.84
Net income (loss) available to
common shareholders (0.74) 1.33 1.29 0.97 0.84
Weighted average shares of common stock and
equivalents 35,159 36,120 31,058 28,307 24,747
- -----------------------------------------------------------------------------------------------------------------
Financial Measurements
Operating income before capital costs * as a
percent of revenue 9.6% 16.8% 18.9% 19.2% 17.8%
Earnings (loss) before income taxes,
extraordinary items and cumulative effect
of an accounting change as a percent of
revenue (2.2%) 6.8% 8.6% 8.3% 7.1%
Return ** (before interest) on average
assets employed 2.8% 5.7% 6.9% 7.0% 6.2%
Return** on average shareholders' equity (3.8%) 8.4% 11.4% 12.3% 11.6%
Long-term debt to equity ratio 1.55 1.07 .66 1.4 1.3
- -----------------------------------------------------------------------------------------------------------------
Operating Data
Payor Mix (as a percent of patient service
revenue)
Private pay and other 45% 39% 39% 38% 41%
Medicare 20% 24% 25% 21% 16%
Medicaid 35% 37% 36% 41% 43%
Average owned/leased eldercare center beds 15,137 15,132 9,429 8,268 7,530
Occupancy Percentage 91.5% 91.0% 92.6% 91.9% 91.9%
Specialty medical revenue per patient day -
eldercare centers $ 37.57 $ 33.84 $ 29.94 $ 25.06 $ 17.80
Specialty medical revenues - eldercare
services (in thousands) $ 664,486 $ 432,752 $254,663 $154,833 $109,452
Average managed life care units and health
center beds 24,234 6,101 5,030 10,374 9,992
Average full-time equivalent personnel 37,708 27,700 16,325 12,180 8,623
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
SELECTED FINANCIAL DATA, continued
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (in thousands)
Working capital $ 305,718 $ 226,930 $155,491 $132,274 $66,854
Total assets 2,627,368 1,434,113 950,669 600,389 511,698
Long-term debt 1,358,595 651,667 338,933 308,052 250,807
Shareholders' equity $ 875,072 $ 608,021 $514,608 $221,548 $195,466
</TABLE>
* Capital costs include depreciation and amortization, lease expense and
interest expense.
** Before extraordinary items and cumulative effect of an accounting change.
Please refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a description of significant transactions.
24
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Since the Company began operations in July 1985, it has focused its efforts on
providing an expanding array of specialty medical services to elderly customers.
The delivery of these services was originally concentrated in the eldercare
centers owned and leased by the Company, but now also includes managed eldercare
centers, independent healthcare facilities, outpatient clinics and home health
care.
The Company generates revenues from three sources: basic healthcare services,
specialty medical services and management services and other. The Company
includes in basic healthcare services revenues all room and board charges for
its eldercare customers at its 113 owned and leased eldercare centers. Specialty
medical services include all revenues from providing rehabilitation therapies,
institutional pharmacy and medical supply services. Management services and
other include fees earned for management of eldercare centers, other service
related businesses and transactional revenues.
Certain Transactions
Vitalink Transaction
On August 28, 1998, Genesis and its wholly-owned subsidiary V Acquisition
Corporation ("Newco") consummated an Agreement and Plan of Merger (the "Merger
Agreement") with Vitalink Pharmacy Services, Inc., a Delaware corporation
("Vitalink"), pursuant to which Vitalink merged with and into Newco (the
"Vitalink Transaction"). Each share of Vitalink Common Stock, par value $.01 per
share (the "Vitalink Common Stock"), was converted in the merger into the right
to receive (i) .045 shares of Genesis Series G Cumulative Convertible Preferred
Stock, par value $.01 per share (the "Genesis Preferred"), (ii) $22.50 in cash,
or (iii) a combination of cash and shares of Genesis Preferred (collectively,
the " Merger Consideration"). The Merger Consideration paid to stockholders of
Vitalink to acquire their shares (including shares which may have been issued
upon the exercise of outstanding options) was $590,200,000, of which 50% was
paid in cash and 50% in Genesis Preferred. The Genesis Preferred has a face
value of approximately $295,100,000 and an initial dividend of 5.9375% and
generally is not transferable without the consent of the Company. The Genesis
Preferred is convertible into Genesis common stock, par value $.02 per share
(the "Common Stock"), at $37.20 per share and it may be called for conversion
after April 26, 2001, provided the price of Common Stock reaches certain trading
levels and after April 26, 2002, subject to a market-based call premium.
Vitalink's total net revenues for the fiscal years ended May 31, 1997 and 1998,
were $274,000,000 and $494,000,000, respectively. As a result of the merger,
Genesis assumed approximately $87,000,000 of indebtedness Vitalink had
outstanding. The cash portion of the purchase price was funded through
borrowings under the Credit Facility. See " Liquidity and Capital Resources."
Pursuant to four agreements with HCR-Manor Care, Vitalink provides
pharmaceutical products and services, enteral and parenteral therapy supplies
and services, urological and ostomy products, intravenous products and services
and pharmacy consulting services to facilities operated by HCR-Manor Care (the
"Service Contracts"). Vitalink is not restricted from providing similar
contracts to non-HCR-Manor Care facilities. The current term of each of the
Service Contracts extends through September 2004, subject to annual renewals
provided therein.
25
<PAGE>
New Courtland
On July 14, 1998, the Company announced that it received notice from
NewCourtland, Inc. ("NewCourtland"), owner of eight nursing centers in the
Philadelphia area, of the termination of its management agreements for these
centers effective July 31, 1998. This notice follows the revocation on June 25,
1998 of the operating license at one of the NewCourtland centers. The center had
a long-standing history of regulatory compliance difficulties dating back many
years prior to Genesis' management. The Company believes that the termination
notice was inappropriate and has instituted suit against NewCourtland and other
related parties to recover unpaid balances due Genesis, the estimated future
operating profits of the terminated management agreements, as well as
consequential damages. The annualized revenue from the contracts is
approximately $3,800,000.
ElderTrust Transactions
On January 30, 1998, Genesis successfully completed deleveraging transactions
with ElderTrust, a newly formed Maryland healthcare real estate investment
trust. Genesis, a co-registrant on the ElderTrust initial public offering,
received approximately $78,000,000 in proceeds from the sale of 13 properties to
ElderTrust, including four properties it had purchased from Crozer-Keystone
Health System in anticipation of resale to ElderTrust. Genesis received an
additional $14,000,000 from the sale of a loan and two additional assisted
living facilities and the recoupment of amounts advanced and expenses incurred
in connection with the formation of ElderTrust. The sale of properties to
ElderTrust resulted in a gain of approximately $12,000,000 which has been
deferred and is being amortized over the ten year term of the lease contracts
with ElderTrust. Additionally, ElderTrust has funded approximately $13,200,000
of a $15,100,000 commitment to finance the development and expansion of three
additional assisted living facilities. Genesis repaid a portion of the revolving
credit component of the Credit Facility with the proceeds from these
transactions. In September 1998, the Company sold its leasehold rights and
option to purchase seven eldercare facilities acquired in its November 1993
acquisition of Meridian Healthcare, Inc. to ElderTrust for $44,000,000,
including $35,500,000 in cash and an $8,500,000 note. As part of the
transaction, Genesis will continue to sublease the facilities for ten years with
an option to extend the lease until 2018 at an initial annual lease obligation
of approximately $10,000,000. The transaction resulted in a gain of
approximately $43,700,000 which has been deferred and is being amortized over
the ten year lease term of the lease contracts with ElderTrust. The Company also
anticipates entering into transactions with ElderTrust in the future.
Multicare Transaction
In October 1997, Genesis ElderCare Corp., a Delaware Corporation owned 43.6% by
Genesis and the remainder by The Cypress Group (together with its affiliates,
"Cypress"), TPG Partners II, L.P., (together with its affiliates, "TPG") and
Nazem, Inc. (together with its affiliates "Nazem"), acquired The Multicare
Companies, Inc. ("Multicare"), pursuant to a tender offer (the "Tender Offer")
and the merger (the "Merger" or the "Multicare Transaction"). Multicare is in
the business of providing eldercare and specialty medical services in selected
geographic regions. Included among the operations acquired by Genesis ElderCare
Corp. are operations relating to the provision of (i) eldercare services
including skilled nursing care, assisted living, Alzheimer's care and related
support activities traditionally provided in eldercare facilities, (ii)
specialty medical services consisting of (1) sub-acute care such as ventilator
care, intravenous therapy and various forms of coma, pain and wound management
and (2) rehabilitation therapies such as occupational, physical and speech
therapy and stroke and orthopedic rehabilitation and (iii) management services
and consulting services to eldercare centers.
In connection with the Merger, Multicare and Genesis entered into a management
agreement (the "Management Agreement") pursuant to which Genesis manages
Multicare's operations. The Management Agreement has a term of five years with
automatic renewals for two years unless either party terminates the Management
Agreement. Genesis is paid a fee of six percent of Multicare's net revenues for
its services under the Management Agreement provided that payment of such fee in
respect of any month in excess of the greater of (i) $1,991,666 and (ii) four
percent of Multicare's consolidated net revenues for such month, shall be
subordinate to the satisfaction of Multicare's senior and subordinate debt
covenants; and provided, further, that payment of such fee shall be no less than
$23,900,000 in any given year. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and administrative
expenses (other than certain specified third-party expenses), and all other
expenses of Multicare will be paid by Multicare. Genesis also entered into an
asset purchase agreement (the "Therapy Purchase Agreement") with Multicare and
certain of its subsidiaries pursuant to which Genesis acquired all of the assets
used in Multicare's outpatient and inpatient rehabilitation therapy business for
$24,000,000 subject to adjustment (the "Therapy Purchase") and a stock purchase
agreement (the "Pharmacy Purchase Agreement") with Multicare and certain
subsidiaries pursuant to which Genesis acquired all of the outstanding capital
stock and limited partnership interests of certain subsidiaries of Multicare
that are engaged in the business of providing institutional pharmacy services to
third parties for $50,000,000 (the "Pharmacy Purchase"), subject to adjustment.
The Company completed the Pharmacy Purchase effective January 1, 1998. The
Company completed the Therapy Purchase in October 1997.
26
<PAGE>
In addition, Genesis, Cypress, TPG and Nazem entered into an agreement (the
"Put/Call Agreement") pursuant to which, among other things, Genesis has the
option, on the terms and conditions set forth in the Put/Call Agreement to
purchase (the "Call") Genesis ElderCare Corp. Common Stock held by Cypress, TPG
and Nazem commencing on October 9, 2001 and for a period of 270 days thereafter,
at a price determined pursuant to the terms of the Put/Call Agreement. Cypress,
TPG and Nazem have the option, on the terms and conditions set forth in the
Put/Call Agreement, to require Genesis to purchase (the "Put") such Genesis
ElderCare Corp. common stock commencing on October 9, 2002 and for a period of
one year thereafter, at a price determined pursuant to the Put/Call Agreement.
Genesis Eldercare Corp. paid approximately $1,492,000,000 to (i) purchase the
Shares pursuant to the Tender Offer and the Merger, (ii) pay fees and expenses
incurred in connection with the completion of the Tender Offer, Merger and the
financing transactions in connection with therewith, (iii) refinance certain
indebtedness of Multicare and (iv) make certain cash payments to employees. Of
the funds required to finance the foregoing, approximately $745,000,000 were
furnished as capital contributions by the Genesis Eldercare Corp. from the sale
of its common stock to Cypress, TPG, Nazem and Genesis. Cypress, TPG and Nazem
purchased shares of Genesis ElderCare Corp. common stock for a purchase price of
$210,000,000, $199,500,000 and $10,500,000, respectively, and Genesis purchased
shares of Genesis ElderCare Corp. common stock for a purchase price of
$325,000,000 in consideration for 43.6% of the common stock of Genesis ElderCare
Corp. The balance of the funds necessary to finance the foregoing came from (i)
the proceeds of loans from a syndicate of lenders in the aggregate amount of
$525,000,000 and (ii) $246,800,000 of bridge financing which was refinanced upon
completion of the sale of 9% Senior Subordinated Notes due 2007 sold by a
subsidiary of Genesis Eldercare Corp. on August 11, 1997.
Geriatric & Medical Companies, Inc.
Effective October 1, 1996, Geriatric & Medical Companies, Inc. ("GMC") merged
with a wholly-owned subsidiary of Genesis (the "GMC Transaction"). Under the
terms of the merger agreement, GMC shareholders received $5.75 per share in cash
for each share of GMC stock. The total consideration paid, including assumed
indebtedness of approximately $132,000,000, was approximately $223,000,000. The
merger was financed in part with approximately $121,250,000 in net proceeds from
an offering of 9 1/4% Senior Subordinated Notes issued in October 1996. The
remaining consideration was financed through borrowings under the Company's then
existing bank credit facility. The GMC Transaction added to Genesis 24 owned
eldercare centers with approximately 3,300 beds. GMC also operates businesses
which provide a number of ancillary healthcare services including ambulance
services; respiratory therapy, infusion therapy and enteral therapy;
distribution of durable medical equipment and home medical supplies; and
information management services.
National Health Care Affiliates, Inc.
In July 1996, the Company acquired the outstanding stock of National Health Care
Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation,
Eidos, Inc. and Versalink, Inc. (collectively "National Health"). Prior to the
closing of the stock acquisitions, an affiliate of a financial institution
purchased nine of the eldercare centers for $67,700,000 and subsequently leased
the centers to a subsidiary of Genesis under operating lease agreements and a
then existing $85,000,000 lease financing facility. The balance of the total
consideration paid to National Health was funded with available cash of
$51,800,000 and assumed indebtedness of $7,900,000. National Health added 16
eldercare centers in Florida, Virginia and Connecticut with approximately 2,200
beds to Genesis. National Health also provides enteral nutrition and
rehabilitation therapy services to the eldercare centers which it owns and
leases.
27
<PAGE>
NeighborCare Pharmacies, Inc.
In June 1996, the Company acquired the outstanding stock of NeighborCare
Pharmacies, Inc., ("NeighborCare") a privately held institutional pharmacy,
infusion therapy and retail pharmacy business based in Baltimore, Maryland.
Total consideration was approximately $57,250,000, comprised of approximately
$47,250,000 in cash and 312,744 shares of Genesis common stock.
McKerley Health Care Centers, Inc.
On November 30, 1995, the Company acquired McKerley Health Care Centers
("McKerley") for total consideration of approximately $68,700,000. The
transaction (the "McKerley Transaction") also provided for up to an additional
$6,000,000 of contingent consideration payable upon the achievement of certain
financial objectives through October 1997, of which $4,000,000 was paid in
February 1997. McKerley added to Genesis 15 geriatric care facilities in New
Hampshire and Vermont with a total of 1,535 beds. McKerley also operates a home
healthcare company. The acquisition was financed with borrowings under the bank
credit facilities and assumed indebtedness.
Other Transactions
At September 30, 1998, the Company held $10,000,000 of convertible preferred
stock of Doctors Health, Inc. ("Doctors Health"), an independent physician owned
and controlled integrated delivery system and practice management company based
in Maryland. The convertible preferred stock, which is accounted for under the
cost method, carries an 8% cumulative dividend and is convertible into common
stock, and if converted would represent an approximate 10% ownership interest in
Doctors Health. Also, the Company loaned to Doctors Health $5,500,000 through
December 1998 at an annual interest rate of 11%. On November 16, 1998, a
voluntary petition for Chapter 11 bankruptcy was filed by Doctors Health. In the
fourth quarter of 1998, the Company wrote-off its investments in Doctors Health.
In March 1996, the Company sold four eldercare centers and a pharmacy in Indiana
for approximately $22,250,000 (the "Indiana Transaction").
In March 1996, the Company acquired for total consideration of approximately
$31,900,000 including the payment of assumed debt, the remaining approximately
71% joint venture interests of four eldercare centers in Maryland and the
remaining 50% joint venture interest of an eldercare center in Florida (the
"Partnership Interest Purchase").
Fiscal 1998 Compared to Fiscal 1997
The Company's total net revenues for fiscal year ended September 30, 1998
("Fiscal 1998") were $1,405,305,000 compared to $1,099,823,000 for the fiscal
year ended September 30, 1997 ("Fiscal 1997") an increase of $305,482,000 or
28%. Basic healthcare services increased $4,892,000 or 1%, of which
approximately $17,292,000 is due to providing care to higher acuity patients and
rate increases, offset by $12,400,000 from the termination of operations by
Genesis of three leased eldercare centers in September 1997. Specialty medical
services revenue increased $234,159,000 or 47% of which approximately
$46,600,000 is attributed to the August 1998 Vitalink Transaction, approximately
$80,598,000 is attributed to the Multicare pharmacy business acquired effective
January 1998, approximately $21,548,000 is attributed to the purchase of the
Multicare rehabilitation therapy business acquired in October 1997, and the
remaining increase of approximately $98,413,000 is primarily due to other volume
growth in the institutional pharmacy, medical supply and contract therapy
divisions and increased acuity in the eldercare centers. This increase was
offset by approximately $6,500,000, $3,300,000 and $3,200,000 as a result of the
4th quarter of Fiscal 1997 deconsolidation of the Company's physician services
business, the termination of the operations of three leased eldercare centers in
September 1997 and the April 1998 government mandated implementation of salary
equivalency billing for rehabilitation therapy, respectively. Specialty medical
service revenue per patient day in the Company's eldercare centers increased 11%
to $37.57 in the twelve months ended September 30, 1998 compared to $33.84 in
the twelve months ended September 30, 1997 primarily due to treatment of higher
acuity patients. Management services and other income increased $66,431,000 or
140%. This increase is primarily due to approximately $42,200,000 of management
fee revenue earned from the management of the operations of the Multicare
business and approximately $24,200,000 of other revenue growth, including
capitated revenue earned under a contract with Blue Cross / Blue Shield of
Maryland (BCBSMD).
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The Company's operating expenses before depreciation, amortization, lease
expense and interest expense were $1,270,615,000 for the twelve months ended
September 30, 1998 compared to $914,955,000 for twelve months ended September
30, 1997, an increase of $355,660,000 or 39%, of which approximately $14,100,000
is due to the direct operating costs incurred to service the Multicare
management contracts, approximately $39,200,000 is due to the August 1998
acquisition of Vitalink Pharmacies, approximately $63,900,000 is due to the
January 1998 acquisition of the Multicare pharmacy operations, approximately
$18,600,000 is due to the October 1997 acquisition of the Multicare
rehabilitation therapy business, approximately $19,800,000 is due to charges
incurred in connection with capitation costs under a contract with BCBSMD,
approximately $20,700,000 is attributed principally to write-offs included in
other operating expenses for uncollectible receivables and other assets of
eldercare centers previously owned or managed by the Company, approximately
$80,700,000 is attributed to an increase in the Company's loss on impairment of
assets in the current fiscal year versus the prior fiscal year and the remaining
increase of approximately $118,500,000 is attributed to growth in the
institutional pharmacy, medical supply and contract therapy divisions, as well
as increased costs in information technology systems, community-based programs,
marketing campaigns and the overhead costs of servicing the Multicare management
contracts. This increase is offset by approximately $7,800,000 and $12,000,000
as a result of the deconsolidation of the Company's physician services business
beginning in the fourth quarter of 1997 and the termination of operations of
three leased eldercare centers in September 1997, respectively.
Due to specific events occurring in the fourth quarter of Fiscal 1998 and a
focus on core business operations in response to PPS, the Company recorded
non-cash charges before income taxes of approximately $116,000,000, of which
approximately $24,000,000 relates to the impairment of one eldercare center and
certain non-core businesses, including the Company's ambulance business and
certain non-core Medicare home health operations; approximately $43,000,000
relates to investments in owned eldercare centers and other assets the Company
believes are impaired as a result of PPS; approximately $23,000,000 relates to
impaired investments in eldercare centers previously owned or managed by the
Company; and approximately $26,000,000 relates to the Company's investment in
Doctors Health, a medical care management company in the Company's Chesapeake
region.
In the fourth quarter of Fiscal 1997, the Company completed an evaluation of its
physician service business and announced its intentions to restructure this
business. In connection with the plan and selected asset impairments, the
Company recorded a fourth quarter pretax charge of approximately $5,700,000. In
addition, the Company reached an agreement with BCBSMD to insure, through a
sub-capitation agreement, the health care benefits of approximately 7,000
members of BCBSMD's Care First Medicare product. The Company recorded a
liability and pretax impairment loss of approximately $5,000,000 to accrue for
the estimated loss inherent in the agreement. The asset impairment charge also
included a pretax charge of approximately $4,300,000 related to the write-off of
selected assets deemed unrecoverable.
Increased depreciation and amortization expense of $10,439,000 is attributed to
the amortization of goodwill, fixed assets and deferred financing costs in
connection with the Company's investment in Multicare, the Pharmacy Purchase and
the Therapy Purchase, the Vitalink Transaction, as well as depreciation of
increased investments in information systems, offset by decreased depreciation
expense of seven properties formerly owned by Genesis and now leased from
ElderTrust.
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Lease expense increased $2,595,000 due to additional lease expense of seven
properties formerly owned by Genesis and now leased from ElderTrust, offset by
the termination of operations of three leased eldercare centers in September
1997.
Interest expense increased $42,985,000 or 110%. This increase in interest
expense was primarily due to additional borrowings used to finance the Company's
investment in Multicare, the Pharmacy Purchase and the Therapy Purchase, the
Vitalink Transaction and an increase in the Company's weighted average borrowing
rate on the Credit Facility. This increase is offset by interest savings as a
result of the repayment of indebtedness from proceeds received in connection
with the ElderTrust Transaction.
In connection with the early repayment of debt in the quarters ended December
31, 1998 and 1997, the Company recorded an extraordinary loss, net of tax of
approximately $1,924,000 ($3,030,000 before tax) and $553,000 ($871,000 before
tax), respectively, to write-off unamortized deferred financing fees.
Fiscal 1997 Compared to Fiscal 1996
The Company's total net revenues for fiscal year ended September 30, 1997 were
$1,099,823,000 compared to $671,469,000 for the fiscal year ended September 30,
1996 ("Fiscal 1996"), an increase of $428,354,000 or 64%. Basic healthcare
services increased $201,947,000 or 58%, of which approximately $132,800,000 is
attributable to the GMC Transaction, approximately $45,800,000 is attributable
to the inclusion of the eldercare centers acquired in the National Health
transaction, for the full twelve months in 1997 versus three months in the prior
year, approximately $9,900,000 is due to the inclusion of the eldercare centers
acquired in the McKerley Transaction for the full twelve months in 1997 versus
ten months in the prior year, and the remaining increase of approximately
$14,600,000 is due to providing care to higher acuity patients and to rate
increases. This increase was offset by approximately $1,200,000 due to the
termination of operations of three leased eldercare centers in September 1997
and a decline in overall census. Specialty medical services revenue increased
$211,954,000 or 73% of which approximately $47,300,000 is attributed to the GMC
Transaction, approximately $16,800,000 is due to the inclusion of the eldercare
centers acquired in the National Health transaction for the full twelve months
in 1997 versus three months in the prior year, approximately $42,200,000 is
attributed to the inclusion of the NeighborCare Pharmacies transaction for the
full twelve months in 1997 versus five months in 1996, approximately $1,500,000
is due to the inclusion of the eldercare centers acquired in the McKerley
Transaction for the full twelve months in 1997 versus ten months in the prior
year, and the remaining increase of approximately $106,900,000 is primarily due
to other volume growth in the institutional pharmacy, medical supply and
contract therapy divisions and increased acuity in the health centers division.
This increase was offset by approximately $2,400,000 and $300,000 as a result of
the 4th quarter of Fiscal 1997 deconsolidation of the Company's physician
services business and the termination of the operations of three leased
eldercare centers in September 1997, respectively. Specialty medical service
revenue per patient day in the health centers division increased 13% to $33.84
in the twelve months ended September 30, 1997 compared to $29.94 in the twelve
months ended September 30, 1996 primarily due to treatment of higher acuity
patients. Management services and other income increased $14,453,000 or 44%.
This increase is primarily due to other service business acquired in the GMC
Transaction, offset by other transactional revenues earned in the twelve months
ended September 30, 1996 which included gains recognized in connection with the
sale of an investment, the sale of four eldercare centers and a pharmacy in
Indiana and the sale of a majority interest in one eldercare center in Maryland.
The Company's operating expenses before depreciation, amortization, lease
expense, interest expense and debenture conversion expense were $914,955,000 for
the twelve months ended September 30, 1997 compared to $543,200,000 for twelve
months ended September 30, 1996, an increase of $371,755,000 or 68%, which is
principally due to the impact of acquisitions, growth in the institutional
pharmacy, medical supply and contract therapy divisions and due to a $15,000,000
asset impairment charge recorded in the fourth quarter of Fiscal 1997. In the
fourth quarter of Fiscal 1997, the Company completed an evaluation of its
physician service business and announced its intentions to restructure this
business, including the closure and possible sale of free standing service
sites, the restructuring of physician compensation arrangements and the
termination of certain staff. In connection with the plan and selected asset
impairments, the Company recorded a fourth quarter pretax charge of
approximately $5,700,000. In addition, the Company reached an agreement with
BCBSMD to insure, through a sub-capitation agreement, the health care benefits
of approximately 7,000 members of BCBSMD's Care First Medicare product. As a
result, the Company has recorded a liability and pretax impairment charge of
approximately $5,000,000 to accrue for the estimated loss inherent in the
agreement. The impairment charge also included a pretax charge of approximately
$4,300,000 related to the write-off of selected assets deemed unrecoverable.
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Increased depreciation and amortization, and lease expense are primarily
attributed to the assets acquired in the GMC Transaction, the National Health
transaction, the NeighborCare transaction and the McKerley Transaction.
Interest expense increased $14,177,000 or 57%. This increase in interest expense
was primarily due to additional borrowings used to finance recent acquisitions,
including the 1996 Note Offering used to finance the GMC Transaction, offset by
the repayment of debt associated with proceeds of $202,280,000 from the May 1996
equity offering, and offset by the conversion of the Company's 6% Convertible
Senior Subordinated Debentures.
In connection with the early repayment of debt and the restructuring and
amendment of the Company's bank credit facility in the quarter ended December
31, 1996, the Company recorded an extraordinary item net of tax of approximately
$553,000 ($871,000 before tax) to write off unamortized deferred financing fees.
Liquidity and Capital Resources
General
Working capital increased $78,788,000 to $305,718,000 at September 30, 1998 from
$226,930,000 at September 30, 1997. Accounts receivable increased approximately
$170,894,000 during this period, of this increase approximately $6,500,000
relates to business acquired in the Therapy Purchase, approximately $18,700,000
relates to business acquired in the Pharmacy Purchase, approximately $87,833,000
relates to business acquired in the Vitalink Transaction, while the remaining
approximately $57,861,000 relates primarily to the continuing shift in business
mix to specialty medical services, particularly the home medical equipment and
infusion therapy lines of business, which typically have a longer collection
period. Days revenue in accounts receivable increased one day to 70 days versus
the quarter ended June 30, 1998. The Company's cash flow from operations for the
twelve months ended September 30, 1998 was approximately $77,955,000 compared to
approximately $53,354,000 for the twelve months ended September 30, 1997,
principally due to growth in operations and working capital management.
Investing activities for the twelve months ended September 30, 1998 include
approximately $56,663,000 of capital expenditures primarily related to
betterments and expansion of eldercare centers and investment in data processing
hardware and software. During the twelve months ended September 30, 1998, other
long term assets increased approximately $42,182,000, principally due to
approximately $20,000,000 of net financing and other transaction related costs
incurred in connection with the Multicare Transaction, the Pharmacy Purchase,
the Therapy Purchase and the Vitalink Transaction; approximately $14,000,000 of
subordinated management fees due from Multicare and approximately $3,400,000 of
increased property deposits principally from newly leased eldercare centers. At
September 30, 1998, notes receivable and other investments declined
approximately $61,100,000 compared to September 30, 1997, principally due to the
restructuring and repayment of a $45,000,000 mortgage loan and a $10,000,000
working capital loan with 11 managed eldercare centers in Florida, the
impairment write-off of the Company's $10,000,000 convertible preferred stock
investment and a $5,000,000 note receivable with Doctors Health, offset by an
$8,500,000 note extended to ElderTrust in connection with the sale of leasehold
rights and an option to purchase seven eldercare centers.
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The Vitalink and ElderTrust Transactions
The total consideration paid to stockholders of Vitalink to acquire their shares
(including shares which may have been issued upon the exercise of outstanding
options) was $590,200,000, of which 50% was paid in cash and 50% in Genesis
Preferred. As a result of the merger, Genesis assumed approximately $87,000,000
of indebtedness Vitalink had outstanding. The Genesis Preferred has a face value
of approximately $295,100,000 and an initial dividend of 5.9375% and generally
is not transferable without the consent of the Company. The Genesis Preferred is
convertible into Common Stock at $37.20 per share and it may be called for
conversion after April 26, 2001, provided the price of Common Stock reaches
certain levels and after April 26, 2002, subject to a market-based call premium.
Vitalink's total net revenues for the fiscal years ended May 31, 1997 and 1998,
were $274,000,000 and $494,000,000, respectively. The cash portion of the
purchase price was funded through borrowings under the Credit Facility.
On January 30, 1998, Genesis successfully completed deleveraging transactions
with ElderTrust, a newly formed Maryland healthcare real estate investment
trust. Genesis, a co-registrant on the ElderTrust initial public offering,
received approximately $78,000,000 in proceeds from the sale of 13 properties to
ElderTrust, including four properties it had purchased from Crozer-Keystone
Health System in anticipation of resale to ElderTrust. Genesis received an
additional $14,000,000 from the sale of a loan and two additional assisted
living facilities and the recoupment of amounts advanced and expenses incurred
in connection with the formation of ElderTrust. The sale of properties to
ElderTrust resulted in a gain of approximately $12,000,000 which has been
deferred and is being amortized over the ten year term of the lease contracts
with ElderTrust. Additionally, ElderTrust has funded approximately $13,200,000
of a $15,100,000 commitment to finance the development and expansion of three
additional assisted living facilities. Genesis repaid a portion of the revolving
credit component of its Credit Facility with the proceeds from these
transactions. In September 1998, the Company sold its leasehold rights and
option to purchase seven eldercare facilities acquired in its November 1993
acquisition of Meridian Healthcare, Inc. to ElderTrust for $44,000,000,
including $35,500,000 in cash and an $8,500,000 note. As part of the
transaction, Genesis will continue to sublease the facilities for ten years with
an option to extend the lease until 2018 at an initial annual lease obligation
of approximately $10,000,000. The transaction resulted in a gain of
approximately $43,700,000 which has been deferred and is being amortized over
the ten year lease term of the lease contracts with ElderTrust. The Company also
anticipates entering into transactions with ElderTrust in the future.
Credit Facility
Genesis entered into a credit agreement pursuant to which the lenders provided
Genesis and its subsidiaries a credit facility totaling $1,250,000,000 (the
"Credit Facility") for the purpose of: refinancing certain existing indebtedness
of Genesis; funding interest and principal payments on the facilities and
certain remaining indebtedness; funding permitted acquisitions; funding Genesis'
commitments in connection with the Vitalink Transaction; and funding Genesis'
and its subsidiaries' working capital for general corporate purposes, including
fees and expenses of the transactions. The Credit Facility consists of three
$200,000,000 term loans (collectively, the "Term Loans"), a $650,000,000
revolving credit loan (the "Revolving Facility"), which includes one or more
Swing Loans (collectively, the "Swing Loan Facility") in integral principal
multiples of $500,000 up to an aggregate unpaid principal amount of $15,000,000.
The Term Loans amortize in quarterly installments beginning in Fiscal 1998
through 2005, of which $24,419,000 is payable in Fiscal 1999. The Term Loans
consist of (i) a $200,000,000 six year term loan (the "Tranche A Term
Facility"); (ii) a $200,000,000 seven year term loan (the "Tranche B Term
Facility"); and (iii) a $200,000,000 eight year term loan (the "Tranche C Term
Facility"). The Revolving Facility becomes payable in full on September 30,
2003. The third amendment to the Credit Facility, dated December 15, 1998, made
the financial covenants for certain periods less restrictive, permitted the
proceeds of subordinated debt offerings to repay indebtedness under the
Revolving Facility and increased the interest rates applying to the Term Loans
and the Revolving Facility. The revised financial covenants reflect the impact
of PPS and the non-cash charges in the fourth quarter of 1998.
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The Credit Facility is secured by a first priority security interest in all of
the stock, partnership interests and other equity of all of Genesis' present and
future subsidiaries (including Genesis ElderCare Corp.) other than the stock of
Multicare and its subsidiaries. Loans under the Credit Facility bear, at
Genesis' option, interest at the per annum Prime Rate as announced by the
administrative agent, or the applicable Adjusted LIBO Rate plus, in either
event, a margin that is dependent upon a certain financial covenant test. Loans
under the Tranche A Term Facility and Revolving Facility bear interest at an
annual rate of .75% for Prime Rate loans and 2.5% (8.14% at September 30, 1998)
for LIBO Rate loans. Loans under the Tranche B Term Facility bear interest at an
annual rate of 1.25% for Prime Rate loans and 3.0% (8.64% at September 30, 1998)
for LIBO Rate loans. Loans under the Tranche C Term Facility bear interest at an
annual rate of 1.5% for Prime Rate loans and 3.25% (8.89% at September 30, 1998)
for LIBO Rate loans. Loans under the Swing Loan Facility bear interest at the
Prime Rate unless otherwise agreed to by the parties. Subject to meeting certain
financial covenants, the above referenced interest rates are reduced.
The Credit Facility contains a number of covenants that, among other things,
restrict the ability of Genesis and its subsidiaries to dispose of assets, incur
additional indebtedness, make loans and investments, pay dividends, engage in
mergers or consolidations, engage in certain transactions with affiliates and
change control of capital stock, and to make capital expenditures; prohibit the
ability of Genesis and its subsidiaries to prepay debt to other persons, make
material changes in accounting and reporting practices, create liens on assets,
give a negative pledge on assets, make acquisitions and amend or modify
documents; causes Genesis and its affiliates to maintain the Management
Agreement, the Put/Call Agreement, as defined, and corporate separateness; and
will cause Genesis to comply with the terms of other material agreements, as
well as comply with usual and customary covenants for transactions of this
nature.
In December 1998, the Company issued $125,000,000, 9 7/8% Senior Subordinated
Notes due 2009. Interest on the notes are payable semi-annually on January 15
and July 15 of each year, commencing July 15, 1999. Approximately $59,950,000 of
the net proceeds were used to repay portions of the Tranche A, B and C Term
Facilities and approximately $59,950,000 of the net proceeds were used to repay
a portion of the Revolving Facility.
The Multicare Transaction
In connection with the Multicare Transaction, Genesis, Cypress, TPG and Nazem
entered into an agreement (the "Put/Call Agreement") pursuant to which, among
other things, Genesis will have the option, on the terms and conditions set
forth in the Put/Call Agreement to purchase (the "Call") Genesis ElderCare Corp.
Common Stock held by Cypress, TPG and Nazem commencing on October 9, 2001 and
for a period of 270 days thereafter, at a price determined pursuant to the terms
of the Put/Call Agreement. Cypress, TPG and Nazem will have the option, on the
terms and conditions set forth in the Put/Call Agreement, to require Genesis to
purchase (the "Put") such Genesis ElderCare Corp. common stock commencing on
October 9, 2002 and for a period of one year thereafter, at a price determined
pursuant to the Put/Call Agreement.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's Genesis
ElderCare Corp. common stock, plus a portion of the Genesis pharmacy business
(the "Calculated Equity Value"). The Calculated Equity Value will be determined
based upon a multiple of Genesis ElderCare Corp.'s earnings before interest,
taxes, depreciation, amortization and rental expenses, as adjusted ("EBITDAR")
after deduction of certain liabilities, plus a portion of the EBITDAR related to
the Genesis pharmacy business. The multiple to be applied to EBITDAR will depend
on whether the Put or the Call is being exercised. Any payment to Cypress, TPG
or Nazem under the Call or the Put may be in the form of cash or Genesis common
stock at Genesis' option.
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Upon exercise of the Call, Cypress, TPG and Nazem will receive at a minimum
their original investment plus a 25% compound annual return thereon regardless
of the Calculated Equity Value. Any additional Calculated Equity Value
attributable to Cypress', TPG's or Nazem's Genesis ElderCare Corp. common stock
will be determined on the basis set forth in the Put/Call Agreement which
provides generally for additional Calculated Equity Value of Genesis ElderCare
Corp. to be divided based upon the proportionate share of the capital
contributions of the stockholders to Genesis ElderCare Corp. Upon exercise of
the Put by Cypress, TPG or Nazem, there will be no minimum return to Cypress,
TPG or Nazem; and any payment to Cypress, TPG or Nazem will be limited to
Cypress' TPG's or Nazem's share of the Calculated Equity Value based upon a
formula set forth in the terms of the Put/Call Agreement.
Cypress', TPG's and Nazem's rights to exercise the Put will be accelerated upon
an event of bankruptcy of Genesis, a change of control of Genesis, an
extraordinary dividend or distribution or the occurrence of the leverage
recapitalization of Genesis. Upon an event of acceleration or the failure by
Genesis to satisfy its obligations upon exercise of the Put, Cypress, TPG and
Nazem will have the right to terminate the Stockholders' Agreement, dated
October 9, 1997, by and among the Company, Genesis ElderCare Corp., Cyrpess, TPG
and Nazem, and Management Agreement and to control the sale or liquidation of
Genesis ElderCare Corp. In the event of such sale, the proceeds from such sale
will be distributed among the parties as contemplated by the formula for the Put
option exercise price and Cypress, TPG and Nazem will retain a claim against
Genesis for the difference, if any, between the proceeds of such sale and the
put option exercise price. In the event of a bankruptcy or change of control of
Genesis, the option price shall be payable solely in cash provided any such
payment will be subordinated to the payment of principal and interest under the
Credit Facility.
Legislative and Regulatory Issues
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which has adversely impacted the
Company. The changes have limited, and are expected to continue to limit,
payment increases under these programs. Also, the timing of payments made under
the Medicare and Medicaid programs is subject to regulatory action and
governmental budgetary constraints; in recent years, the time period between
submission of claims and payment has increased. Implementation of the Company's
strategy to expand specialty medical services to independent providers should
reduce the impact of changes in the Medicare and Medicaid reimbursement programs
on the Company as a whole. Within the statutory framework of the Medicare and
Medicaid programs, there are substantial areas subject to administrative rulings
and interpretations which may further affect payments made under those programs.
Further, the federal and state governments may reduce the funds available under
those programs in the future or require more stringent utilization and quality
reviews of eldercare centers or other providers. There can be no assurances that
adjustments from Medicare or Medicaid audits will not have a material adverse
effect on the Company.
Pursuant to the Balanced Budget Act commencing with cost reporting periods
beginning on July 1, 1998, PPS began to be phased in for skilled nursing
facilities at a per diem rate for all covered Part A skilled nursing facility
services as well as many services for which payment may be made under Part when
a beneficiary who is a resident of a skilled nursing facility receives covered
skilled nursing facility care. The consolidated per diem rate is adjusted based
upon the RUG. In addition to covering skilled nursing facility services, this
consolidated payment will also cover rehabilitation and non-rehabilitation
ancillary services. Physician services, certain nurse practitioner and physician
assistant services, among others, are not included in the per diem rate. For the
first three cost reporting periods beginning on or after July 1, 1998, the per
diem rate will be based on a blend of a facility specific-rate and a federal per
diem rate. In subsequent periods, and for facilities first receiving payments
for Medicare services on or after October 1, 1995, the federal per diem rate
will be used without any facility specific blending.
The Balanced Budget Act also required consolidated billing for skilled nursing
facilities. Under the Balanced Budget Act, the skilled nursing facility must
submit all Medicare claims for Part A and Part B services received by its
residents with the exception of physician, nursing, physician assistant and
certain related services, even if such services were provided by outside
suppliers. Medicare will pay the skilled nursing facilities directly for all
services on the consolidated bill and outside suppliers of services to residents
of the skilled nursing facilities must collect payment from the skilled nursing
facility. Although consolidated billing was scheduled to begin July 1, 1998 for
all services, it has been delayed until further notice for beneficiaries in a
Medicare Part A stay in a skilled nursing facility not yet using PPS and for the
Medicare Part B stay. There can be no assurance that the Company will be able to
provide skilled nursing services at a cost below the established Medicare level.
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Effective April 10, 1998, regulations were adopted by the Health Care Financing
Administration, which revise the methodology for determining the reasonable cost
for contract therapy services, including physical therapy, respiratory therapy,
occupational therapy and speech language pathology. Under the regulations, the
reasonable costs for contract therapy services are limited to
geographically-adjusted salary equivalency guidelines. However, the revised
salary equivalency guidelines will no longer apply when the PPS system
applicable to the particular setting for contract therapy services (e.g. skilled
nursing facilities, home health agencies, etc.) goes into effect.
The Balanced Budget Act also repealed the Boren Amendment federal payment
standard for Medicaid payments to Medicaid nursing facilities effective October
1, 1997. The Boren Amendment required Medicaid payments to certain health care
providers to be reasonable and adequate in order to cover the costs of
efficiently and economically operated health care facilities. States must now
use a public notice and comment period in order to determine rates and provide
interested parties a reasonable opportunity to comment on proposed rates and the
justification for and the methodology used in calculating such rates. There can
be no assurance that budget constraints or other factors will not cause states
to reduce Medicaid reimbursement to nursing facilities and pharmacies or that
payments to nursing facilities and pharmacies will be made on timely basis. The
law also grants greater flexibility to states to establish Medicaid managed care
projects without the need to obtain a federal waiver. Although these waiver
projects generally exempt institutional care, including nursing facilities and
institutional pharmacy services, no assurances can be given that these projects
ultimately will not change the reimbursement system for long-term care,
including pharmacy services from fee-for-service to managed care negotiated or
capitated rates. The Company anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies.
In July 1998, the Clinton Administration issued a new initiative to promote the
quality of care in nursing homes. This initiative includes, but is not limited
to (i) increased enforcement of nursing home safety and quality regulations;
(ii) increased federal oversight of state inspections of nursing homes; (iii)
prosecution of egregious violations of regulations governing nursing homes; (iv)
the publication of nursing home survey results on the Internet; and (v)
continuation of the development of the Minimum Data Set ("MDS"), a national
automated clinical data system. Accordingly, with this new initiative, it may
become more difficult for eldercare facilities to maintain licensing and
certification. The Company may experience increased costs in connection with
maintaining its licenses and certifications as well as increased enforcement
actions. In addition, beginning January 1, 1999, outpatient therapy services
furnished by a skilled nursing facility to a resident not under a covered Part A
stay or to non-residents who receive outpatient rehabilitation services will be
paid according to the Medicare Physician Fee Schedule.
Anticipated Impact of Healthcare Reform
Based upon the Company's recent experience with 11 eldercare centers which it
manages that transitioned to PPS effective July 1, 1998 and based upon the
Company's ongoing budget process for its fiscal year ending September 30, 1999,
the Company believes that the impact of PPS on the Company's future earnings is
likely to be greater than originally anticipated by management due to various
factors, including lower than anticipated Medicare per diem revenues, lower than
anticipated Medicare Part B revenues caused by a census shift to Medicare
patients having a greater length of stay, higher than expected ancillary costs
at the centers due to expanded services covered in the Medicare Part A rates,
lower than anticipated routine cost reductions and lower than expected revenues
for contract therapy services.
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Based upon assumptions, the Company estimates that the adverse revenue impact of
PPS in Fiscal 1999 will be approximately $28,000,000 on the Genesis centers and
approximately $18,000,000 on the Multicare centers. In each of Fiscal 2000-2002,
the Company estimates the adverse revenue impact of PPS on its Genesis centers
will approximate an additional $8,000,000. The Company estimates that the
adverse revenue impact of PPS on the Multicare eldercare centers will be
approximately an additional $13,000,000 in Fiscal 2000 and an additional
$5,000,000 in each of Fiscal 2001 and 2002. The Genesis eldercare centers began
implementation of PPS on October 1, 1998 and the majority of the Multicare
eldercare centers will begin implementation of PPS on January 1, 1999. The
actual impact of PPS on the Company's earnings in Fiscal 1999 will depend on
many variables which can not be quantified at this time, including regulatory
changes, patient acuity, patient length of stay, Medicare census, referral
patterns, ability to reduce costs and growth of ancillary business.
Other
In October 1996, the Company completed an offering of $125,000,000 9 1/4% Senior
Subordinated Notes due 2006. The Company used the net proceeds of approximately
$121,250,000 together with borrowings under the Credit Facility, to pay the cash
portion of the purchase price of the Geriatric and Medical Companies (GMC)
Transaction, to repay certain debt assumed as a result of the GMC Transaction
and to repurchase GMC accounts receivable which were previously financed.
In December 1997, the Company purchased approximately 1,000,000 long-term call
options on the Company's Common Stock. The Company's Board of Directors approved
the purchase of up to 1,500,000 call options. The call options are purchased by
the Company in privately negotiated transactions designated to take advantage of
attractive share price levels, as determined by the Company's management, in
compliance with covenants governing existing financing arrangements. The timing
and the terms of the transactions, including maturities, will depend on market
conditions, the Company's liquidity and covenant requirements under its
financing arrangements, and other considerations. The Board of Directors also
approved a Senior Executive Stock Ownership Program. Under the terms of the
program, certain of the Company's current senior executive employees will be
required to own shares of the Company's Common Stock having a market value based
upon a multiple of the executive's salary. Each executive is required to own the
shares within three years of the date of the adoption of the program. Subject to
applicable laws, the Company may lend funds to one or more of the senior
executive employees for his or her purchase of the Company's Common Stock. As of
September 30, 1998, the Company loaned approximately $3,000,000 to senior
executive employees to purchase the Company's Common Stock.
Certain of the Company's other outstanding loans contain covenants which,
without the prior consent of the lenders, limit certain activities of the
Company. Such covenants contain limitations relating to the merger or
consolidation of the Company and the Company's ability to secure indebtedness,
make guarantees, grant security interests and declare dividends. In addition,
the Company must maintain certain minimum levels of cash flow and debt service
coverage, and must maintain certain ratios of liabilities to net worth. Under
these loans, the Company is restricted from paying cash dividends on the Common
Stock, unless certain conditions are met. The Company has not declared or paid
any cash dividends on its Common Stock since its inception.
The Company believes that its liquidity needs can be met by expected operating
cash flow and availability of borrowings under its credit facilities. At
December 9, 1998, approximately $1,084,800,000 was outstanding under the Credit
Facility, and approximately $50,600,000 was available under the Credit Facility
after giving effect to approximately $16,700,000 in outstanding letters of
credit issued under the Credit Facility.
36
<PAGE>
Seasonality
The Company's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing of
Medicaid rate increases, seasonal census cycles, and the number of calendar days
in a given quarter.
Impact of Inflation
The healthcare industry is labor intensive. Wages and other labor costs are
especially sensitive to inflation and marketplace labor shortages. To date, the
Company has offset its increased operating costs by increasing charges for its
services and expanding its services. Genesis has also implemented cost control
measures to limit increases in operating costs and expenses but cannot predict
its ability to control such operating cost increases in the future. See
"Cautionary Statements Regarding Forward Looking Statements."
Year 2000 Compliance
The Company has implemented a process to address its Year 2000 compliance
issues. The process includes (i) an inventory and assessment of the compliance
of the essential systems and equipment of the Company and of year 2000 mission
critical suppliers, customers, and other third parties, (ii) the remediation of
non-compliant systems and equipment, and (iii) contingency planning. The Company
is in the process of conducting its inventory, assessment and remediation of its
information technology ("IT") systems, equipment and non-IT systems and
equipment (embedded technology) and has completed approximately 70% of its
internal inventory and assessment and approximately 30% of the systems and
equipment of critical suppliers, customers and other third parties.
With respect to the Year 2000 compliance of critical third parties, the Company
derives a substantial portion of its revenues from the Medicare and Medicaid
programs. Congress' General Accounting Office ("GAO") recently concluded that it
is highly unlikely that all Medicare systems will be compliant on time to ensure
the delivery of uninterrupted benefits and services into the Year 2000. While
the Company does not receive payments directly from Medicare, but from
intermediaries, the GAO statement is interpreted to apply as well to these
intermediaries. The Company intends to actively confirm the Year 2000 readiness
status for each intermediary and to work cooperatively to ensure appropriate
continuing payments for services rendered to all government-insured patients.
The Company is remediating its critical IT and non-IT systems and equipment. The
Company has also begun contingency planning in the event that essential systems
and equipment fail to be Year 2000 compliant. The Company is planning to be Year
2000 complaint for all its essential systems and equipment by September 30,
1999, although there can be no assurance that it will achieve its objective by
such date or by January 1, 2000, or that such potential non-compliance will not
have a material adverse effect on the Company's business, financial condition or
results of operations. In addition there can be no assurance that all of the
Company's critical suppliers and other third parties will be Year 2000 complaint
by January 1, 2000, or that such potential non-compliance will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company currently estimates that its aggregate costs directly related to
Year 2000 compliance efforts will be approximately $1,000,000, of which
approximately $500,000 has been spent through September 30, 1998. The Company's
Year 2000 efforts are ongoing and its overall plan and cost estimations will
continue to evolve, as new information becomes available. The Company's analysis
of its Year 2000 issues is based in part on information from third party
suppliers; there can be no assurance that such information is accurate or
complete.
The failure of the Company or third parties to be fully Year 2000 compliant for
essential systems and equipment by January 1, 2000 could result in interruptions
of normal business work operations. The Company's potential risks include (i)
the inability to deliver patient care related services in the Company's
facilities and / or in non-affiliated facilities, (ii) the delayed receipt of
reimbursement from the Federal or State governments, private payors, or
intermediaries, (iii) the failure of security systems, elevators, heating
systems or other operational systems and equipment of the Company's facilities
and (iv) the inability to receive critical equipment and supplies from vendors.
Each of these events could have a material adverse affect on the Company's
business, results of operations and financial condition.
37
<PAGE>
Contingency plans for the Company's Year 2000-related issues continue to be
developed and include, but are not limited to, identification of alternate
suppliers, alternate technologies and alternate manual systems. The Company is
planning to have contingency plans completed for essential systems and equipment
by June 30, 1999; however, there can be no assurance that it will meet this
objective by such date or by January 1, 2000.
The Year 2000 disclosure set forth above is intended to be a "Year 2000
statement" as such term is defined in the Year 2000 Information and Readiness
Disclosure Act of 1998 (the "Year 2000 Act") and, to the extent such disclosure
relates to Year 2000 processing of the Company or to products or services
offered by the Company, is also intended to be "Year 2000 Readiness Disclosure"
as such term is defined in the Year 2000 Act.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board, (the "FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"). Statement 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement is effective
for fiscal years beginning after December 15, 1997, or the Company's fiscal year
end September 30, 1999. The Company plans to adopt this accounting standard as
required. The adoption of this standard will have no material impact on the
Company's earnings, financial condition or liquidity, but will require the
Company to classify items other than comprehensive income in the financial
statements and display the accumulated balance of other comprehensive income
separately in the equity section of the balance sheet.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 supersedes Statement of Financial Accounting
Standards No. 14, Financial Reporting of a Business Enterprise, and establishes
new standards for reporting information about operation segments in annual
financial statements and requires selected information about operating segments
in interim financial reports. Statement 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for years beginning after December 15,
1997, or the Company's fiscal year end September 30, 1999. This statement
affects reporting in financial statements only and will have no impact on the
Company's results of operations, financial condition or liquidity.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("Statement 98-1"). Once the capitalization criteria
of Statement 98-1 have been met, external directs costs of materials and
services consumed in developing or obtaining internal-use computer software;
payroll and payroll-related costs for employees who are directly associated with
and who devote time to the internal-use computer software project (to the extent
of the time spent directly on the project); and interest costs incurred when
developing computer software for internal use should be capitalized. Training
costs and data conversion costs, should be expensed as incurred. Statement 98-1
is effective for financial statements for fiscal years beginning after December
15, 1998, with earlier application encouraged. The Company adopted the
provisions of Statement 98-1 in its fiscal year ended September 30, 1998.
38
<PAGE>
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities (the "Statement").
The Statement requires costs of start-up activities, including organizational
costs, to be expensed as incurred. Start-up activities are defined as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting businesses in a new territory, conducting business with a
new process in an existing facility, or commencing a new operation. The
Statement is effective for fiscal years beginning after December 15, 1998 or the
Company's fiscal year ending September 30, 2000. The Company currently estimates
the adoption of the Statement will result in a charge of approximately
$1,500,000, net of tax, which will be recorded as a cumulative effect of a
change in accounting principle.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value. The
accounting changes in the fair value of a derivative depends on the intended use
of the derivative and the resulting designation. This Statement is effective for
all fiscal quarters beginning after June 15, 1999. The Company intends to adopt
this accounting standard as required. The adoption of this standard is not
expected to have a material impact on the Company's earnings or financial
position.
39
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Genesis Health Ventures, Inc. and Subsidiaries
Independent Auditors' Report
The Board of Directors and Shareholders
Genesis Health Ventures, Inc.:
We have audited the accompanying consolidated balance sheets of Genesis Health
Ventures, Inc. and subsidiaries as of September 30, 1998 and 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Genesis Health
Ventures, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
December 15, 1998
40
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Assets (in thousands except share and per share data)
Current assets:
Cash and equivalents $ 4,902 $ 11,651
Investments in marketable securities 26,658 14,729
Accounts receivable, net of allowance for doubtful accounts
of $73,719 in 1998 and $39,418 in 1997 376,023 205,129
Cost report receivables 62,257 60,865
Inventory 63,760 25,568
Prepaid expenses and other current assets 40,579 34,495
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 574,179 352,437
- ------------------------------------------------------------------------------------------------------------------------------------
Property, plant, and equipment, net 596,562 578,397
Notes receivable and other investments 47,623 108,714
Other long-term assets 73,904 31,722
Investments in unconsolidated affiliates 344,567 2,887
Goodwill and other intangibles, net 990,533 359,956
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $2,627,368 $1,434,113
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 49,712 $ 8,273
Accounts payable 80,980 47,547
Accrued expenses 59,474 33,835
Accrued compensation 59,371 23,116
Accrued interest 18,924 12,736
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 268,461 125,507
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,358,595 651,667
Deferred income taxes 72,828 37,745
Deferred gains and other long-term liabilities 52,412 11,173
Shareholders' equity:
Series G Cumulative Convertible Preferred Stock, par $.01, authorized
5,000,000 shares, 590,253 issued and outstanding at September 30, 1998 6 -
Common stock, par $.02, authorized 60,000,000 shares, issued and
outstanding 35,225,731 and 35,180,130 at September 30, 1998;
35,117,075 and 35,071,474 at September 30, 1997 704 702
Additional paid-in capital 749,491 457,232
Retained earnings 124,430 150,330
Net unrealized gain on marketable securities 684 -
Treasury stock, at cost (243) (243)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 875,072 608,021
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,627,368 $1,434,113
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
i
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Net revenues:
Basic healthcare services $ 554,855 $ 549,963 $ 348,016
Specialty medical services 736,541 502,382 290,428
Management services and other, net 113,909 47,478 33,025
- ---------------------------------------------------------------------------------------------------------------------------------
Total net revenues 1,405,305 1,099,823 671,469
- ---------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Salaries, wages and benefits 597,513 512,317 315,494
Other operating expenses 525,106 346,599 201,866
General corporate expense 53,179 41,039 25,840
Loss on impairment of assets 94,817 15,000 -
Depreciation and amortization 52,385 41,946 25,374
Lease expense 31,182 28,587 18,638
Interest expense, net 82,088 39,103 24,926
Debenture conversion expense - - 1,245
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, equity in net income
of unconsolidated affiliates and extraordinary items (30,965) 75,232 58,086
Income taxes (8,158) 27,088 20,917
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before equity in net income of unconsolidated
affiliates and extraordinary items (22,807) 48,144 37,169
Equity in net income of unconsolidated affiliates 486 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary items (22,321) 48,144 37,169
Extraordinary items, net of tax (1,924) (553) -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (24,245) 47,591 37,169
Preferred stock dividend 1,655 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders (25,900) 47,591 37,169
=================================================================================================================================
Per common share data:
Basic
Earnings (loss) before extraordinary items $ (0.68) $ 1.39 $ 1.40
Net income (loss) $ (0.74) $ 1.38 $ 1.40
Weighted average shares of common stock and equivalents 35,159,195 34,557,874 26,541,980
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted
Earnings (loss) before extraordinary items $ (0.68) $ 1.34 $ 1.29
Net income (loss) $ (0.74) $ 1.33 $ 1.29
Weighted average shares of common stock and equivalents 35,159,195 36,119,820 31,058,214
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
ii
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Series G
cumulative
convertible Additional
(Dollars in thousands) Common preferred paid-in Retained
stock stock capital earnings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995 $294 $ - $155,927 $ 65,570
- -----------------------------------------------------------------------------------------------------------------------------
Issuance of additional common stock,
net of issuance costs 136 - 211,529 -
Conversion of Debentures 42 - 41,676 -
Exercise of common stock options 5 - 2,503 -
Effect of stock split 163 - (163) -
1996 net earnings - - - 37,169
- -----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $640 $ - $411,472 $102,739
- -----------------------------------------------------------------------------------------------------------------------------
Exercise of common stock options 4 - 2,815 -
Conversion of Debentures 58 - 42,945 -
1997 net earnings - - - 47,591
- -----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $702 $ - $457,232 $150,330
- -----------------------------------------------------------------------------------------------------------------------------
Exercise of common stock options 2 - 1,587 -
Purchase of common stock call options - - (4,442) -
Issuance of Series G Cumulative Convertible Preferred Stock - 6 295,114 -
Net unrealized gain on marketable securities - - - -
1998 net loss - - - (25,900)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $704 $ 6 $749,491 $124,430
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized
gain on
(Dollars in thousands) marketable Treasury
securities stock Total
- ---------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 $ - $(243) $221,548
- ---------------------------------------------------------------------------------------------------------------
Issuance of additional common stock,
net of issuance costs - - 211,665
Conversion of Debentures - - 41,718
Exercise of common stock options - - 2,508
Effect of stock split - - -
1996 net earnings - - 37,169
- ---------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ - $(243) $514,608
- ---------------------------------------------------------------------------------------------------------------
Exercise of common stock options - - 2,819
Conversion of Debentures - - 43,003
1997 net earnings - - 47,591
- ---------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ - $(243) $608,021
- ---------------------------------------------------------------------------------------------------------------
Exercise of common stock options - - 1,589
Purchase of common stock call options - - (4,442)
Issuance of Series G Cumulative Convertible Preferred Stock - - 295,120
Net unrealized gain on marketable securities 684 - 684
1998 net loss - - (25,900)
- ---------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $684 $(243) $875,072
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
iii
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(25,900) $ 47,591 $ 37,169
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Charges (credits) included in operations not requiring funds:
Provision for deferred taxes (8,158) 21,023 5,114
Depreciation and amortization 52,385 41,946 25,374
Amortization of deferred gains and debt premiums (1,700) (858) (460)
Loss on impairment of assets 94,817 15,000 -
Equity in net income of unconsolidated affiliates (486) - -
Debenture conversion expense - - 1,245
Extraordinary items, net of tax 1,924 553 -
Changes in assets and liabilities excluding the effects of acquisitions
Accounts receivable (57,882) (41,801) (6,256)
Cost reports receivable (1,469) (17,447) (15,647)
Inventory (4,942) (5,938) (2,061)
Prepaid expenses and other current assets (4,989) (4,529) 1,955
Accounts payable and accrued expenses 7,192 1,618 (8,707)
Income taxes payable 27,163 (3,804) (1,494)
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments 103,855 5,763 (937)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 77,955 53,354 36,232
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of marketable securities (22,764) (27,022) (3,909)
Proceeds on maturity or sale of marketable securities 10,835 17,809 1,847
Capital expenditures (56,663) (61,102) (38,645)
Payments for acquisitions, net of cash acquired (400,576) (257,837) (215,874)
Investments in unconsolidated affiliates (344,081) - -
Proceeds from assets sold, net 91,495 - 21,521
Reductions in notes receivable and other investments 52,410 1,943 6,913
Additions to notes receivable and other investments (15,947) (14,747) (49,026)
Other long term asset additions, net (15,446) (7,816) (7,871)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (700,737) (348,772) (285,044)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under working capital revolving credit facility 100,500 176,683 50,798
Repayment of long term debt and payment of sinking fund requirments (69,540) (7,946) (2,539)
Proceeds from issuance of long-term debt 611,243 126,500 -
Debt issuance costs (23,317) (3,750) -
Purchase of common stock call options (4,442) - -
Proceeds from issuance of common stock - - 211,250
Stock issuance costs - - (9,585)
Debenture conversion expense - - (1,245)
Stock options exercised 1,589 2,819 2,508
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 616,033 294,306 251,187
- ------------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (6,749) (1,112) 2,375
Cash and equivalents
Beginning of year 11,651 12,763 10,388
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $ 4,902 $ 11,651 $ 12,763
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 85,557 $ 40,869 $ 24,926
Income taxes paid (recovered) (31,370) 12,357 22,374
Non-cash financing activity - issuance of Genesis
Series G Cumulative Convertible Preferred Stock $ 295,120 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
iv
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Genesis Health
Ventures, Inc. and its wholly-owned subsidiaries (the "Company" or "Genesis").
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Investments in unconsolidated affiliated companies, owned 20% to 50% inclusive,
are stated at cost of acquisition plus the Company's equity in undistributed net
income (loss) since acquisition. The change in the equity in net income (loss)
of these companies is reflected as a component of net income or loss on the
Consolidated Statement of Operations.
All dollars, except per share amounts, and shares are expressed in thousands.
All other amounts are expressed in whole numbers. Certain prior year balances
have been reclassified to conform with the current year presentation.
Business
The Company provides a broad range of healthcare services to the geriatric
population, principally within five geographic markets in the eastern United
States. These services include basic healthcare services traditionally provided
in eldercare centers; specialty medical services, such as rehabilitation
therapy, institutional pharmacy and medical supply services, community-based
pharmacies and subacute care; and management services to independent geriatric
care providers.
Contractual Adjustments
Patient revenues are recorded based on standard charges applicable to all
patients. Under Medicare, Medicaid, and other cost-based reimbursement programs,
each facility is reimbursed for services rendered to covered program patients as
determined by reimbursement formulas. The differences between established
billing rates and the amounts reimbursable by the programs and customer payments
are recorded as contractual adjustments and deducted from revenues.
Retroactively calculated third-party contractual adjustments are accrued on an
estimated basis in the period the related services are rendered. Revisions to
estimated contractual adjustments are recorded based upon audits by third-party
payors, as well as other communications with third-party payors such as desk
reviews, regulation changes and policy statements. These revisions are made in
the year such amounts are determined.
Cash Equivalents
Short-term investments which have a maturity of ninety days or less at
acquisition are considered cash equivalents.
Investments in Marketable Securities
Marketable securities, which comprises fixed interest securities and money
market funds are considered to be available for sale and accordingly are
reported at fair value with unrealized gains and losses reported as a separate
component of shareholders' equity, net of related tax effects. Fair values for
fixed interest securities are based on quoted market prices.
A decline in the market value of any security below cost that is deemed other
than temporary is charged to earnings, resulting in the establishment of a new
cost basis for the security.
Premiums and discounts on fixed interest securities are amortized or accreted
over the life of the related security as an adjustment to yield using the
straight-line method. Realized gains and losses for securities classified as
available for sale are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
<PAGE>
Inventories
Inventories, consisting of drugs and supplies, are stated at the lower of cost
or market. Cost is determined primarily on the first-in, first-out (FIFO)
method.
Property, Plant and Equipment
Land, land improvements, buildings, and equipment are stated at cost.
Depreciation is calculated on the straight-line method over estimated useful
lives of 20-35 years for land improvements and buildings, and three to fifteen
years for equipment, furniture, fixtures and information systems. Expenditures
for maintenance and repairs necessary to maintain property and equipment in
efficient operating condition are charged to operations. Costs of additions and
betterments are capitalized. Interest costs associated with construction or
renovation are capitalized in the period in which they are incurred.
The Company records impairment losses on long-lived assets including property,
plant and equipment used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.
41
<PAGE>
Deferred Financing Costs
Financing costs have been deferred and are being amortized on a straight-line
basis, which approximates the effective interest method, over the term of the
related debt. Deferred financing costs, net of accumulated amortization of
$8,705 and $4,972 were $29,566 and $12,939 at September 30, 1998 and 1997,
respectively, and are included in other long term assets.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price over the fair market value
of net assets acquired and is amortized on a straight-line basis from ten to
forty years. Goodwill, before accumulated amortization of $29,900 and $20,900,
was $1,000,100 and $371,900 at September 30, 1998 and 1997, respectively.
Goodwill and other intangibles increased in 1998 principally as a result of the
purchase of Vitalink Pharmacy Services, Inc. (approximately $606,000, subject to
finalization), the purchase of the Multicare rehabilitation services business
(approximately $20,000, subject to finalization), the purchase of the Multicare
pharmacy business (approximately $35,000, subject to finalization), offset by
non-cash asset impairment write-offs (approximately $34,000). Goodwill is
reviewed for impairment whenever events or circumstances provide evidence that
suggest that the carrying amount of goodwill may not be recoverable. The Company
assesses the recoverability of goodwill by determining whether the amortization
of the goodwill balance can be recovered through projected undiscounted future
cash flows.
The Company records impairment losses on long-lived assets including goodwill
and other intangibles used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.
With respect to the carrying value of the excess of cost over net asset value of
purchased facilities and other intangible assets, the Company determines on a
quarterly basis whether an impairment event has occurred by considering factors
such as the market value of the asset; a significant adverse change in legal
factors or in the business climate; adverse regulatory action; a history of
operating or cash flow losses; or a projection of continuing losses associated
with an operating entity. The carrying value of excess cost over net asset value
of purchased facilities and other intangible assets will be evaluated if the
facts and circumstances suggest that it has been impaired. If this evaluation
indicates that the value of the asset will not be recoverable, as determined
based on the undiscounted cash flows of the entity acquired over the remaining
amortization period, an impairment loss is calculated based on excess of the
carrying amount of the asset over the asset's fair value.
42
<PAGE>
Income Taxes
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date. Provision is made for deferred income taxes applicable to
temporary differences between financial statement and taxable income.
Earnings Per Share
In the first quarter of 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("Statement 128").
Statement 128, which makes the standards for computing earnings per share more
comparable to international standards, replaces the presentation of primary and
fully diluted earnings per share with a presentation of basic and diluted
earnings per share. Statement 128 requires dual presentation of basic and
diluted earnings per share on the face of the income statement of all entities
with complex capital structures. The Company has restated its earnings per share
data for the twelve months ended September 30, 1997 and 1996 to conform to the
provisions of Statement 128. The following table sets forth the computation of
basic and diluted earnings per share applicable to common shares:
<TABLE>
<CAPTION>
(amounts are in thousands except per share data): Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Income (loss) before extraordinary items $(23,976) $48,144 $37,169
Extraordinary items (1,924) (553) -
-----------------------------------------------
Net income (loss) $(25,900) $47,591 $37,169
-----------------------------------------------
-----------------------------------------------
Weighted Average Shares 35,159 34,558 26,542
-----------------------------------------------
Earnings (loss) per share before extraordinary items $ (0.68) $ 1.39 $ 1.40
Loss per share - extraordinary items (0.05) (0.02) -
-----------------------------------------------
Earnings (loss) per share $ (0.74) $ 1.38 $ 1.40
-----------------------------------------------
Diluted Earnings (Loss) Per Share:
Income (loss) before extraordinary items $(23,976) $48,144 $37,169
Extraordinary items (1,924) (553) -
-----------------------------------------------
Net income (loss) $(25,900) $47,591 $37,169
Adjustments to net income (loss) for interest
expense, amortization and other costs related to the
assumed conversion of convertible debentures - 303 2,812
-----------------------------------------------
Adjusted net income (loss) $(25,900) $47,894 $39,981
-----------------------------------------------
Weighted Average Shares & Common Stock Equivalents:
Weighted average shares 35,159 34,558 26,542
Dilutive effect of unexercised stock options - 1,125 884
Convertible debenture shares - 437 3,632
-----------------------------------------------
Total 35,159 36,120 31,058
-----------------------------------------------
Earnings (loss) per share before extraordinary items $ (0.68) $ 1.34 $ 1.29
Loss per share - extraordinary items (0.05) (0.02) -
-----------------------------------------------
Earnings (loss) per share $ (0.74) $ 1.33 $ 1.29
-----------------------------------------------
</TABLE>
43
<PAGE>
Use of Estimates
Management of the Company has made a number of estimates relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board, (the "FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"). Statement 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement is effective
for fiscal years beginning after December 15, 1997, or the Company's fiscal year
ended September 30, 1999. The Company plans to adopt this accounting standard as
required. The adoption of this standard will have no material impact on the
Company's earnings, financial condition or liquidity, but will require the
Company to classify items of comprehensive income in the financial statements
and display the accumulated balance of other comprehensive income separately in
the equity section of the balance sheet.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 supersedes Statement of Financial Accounting
Standards No. 14, Financial Reporting of a Business Enterprise, and establishes
new standards for reporting information about operation segments in annual
financial statements and requires selected information about operating segments
in interim financial reports. Statement 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for years beginning after December 15,
1997, or the Company's fiscal year end September 30, 1999. This statement
affects reporting in financial statements only and will have no impact on the
Company's results of operations, financial condition or liquidity.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("Statement 98-1"). Once the capitalization criteria
of Statement 98-1 have been met, external directs costs of materials and
services consumed in developing or obtaining internal-use computer software;
payroll and payroll-related costs for employees who are directly associated with
and who devote time to the internal-use computer software project (to the extent
of the time spent directly on the project); and interest costs incurred when
developing computer software for internal use should be capitalized. Training
costs and data conversion costs, should be expensed as incurred. Statement 98-1
is effective for financial statements for fiscal years beginning after December
15, 1998, with earlier application encouraged. The Company adopted the
provisions of Statement 98-1 in its fiscal year ended September 30, 1998.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities (the "Statement").
The Statement requires costs of start-up activities, including organizational
costs, to be expensed as incurred. Start-up activities are defined as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting businesses in a new territory, conducting business with a
new process in an existing facility, or commencing a new operation. The
Statement is effective for fiscal years beginning after December 15, 1998 or the
Company's fiscal year ending September 30, 2000. The Company currently estimates
the adoption of the Statement will result in a charge of approximately $1,500,
net of tax, which will be recorded as a cumulative effect of a change in
accounting principle.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value. The
accounting changes in the fair value of a derivative depends on the intended use
of the derivative and the resulting designation. This Statement is effective for
all fiscal quarters beginning after June 15, 1999. The Company intends to adopt
this accounting standard as required. The adoption of this standard is not
expected to have a material impact on the Company's earnings or financial
position.
44
<PAGE>
(2) Acquisitions/Dispositions
Vitalink Transaction
On August 28, 1998, Genesis and its wholly-owned subsidiary V Acquisition
Corporation ("Newco") consummated an Agreement and Plan of Merger (the "Merger
Agreement") with Vitalink Pharmacy Services, Inc., a Delaware corporation
("Vitalink"), pursuant to which Vitalink merged with and into Newco (the
"Vitalink Transaction"). Each share of Vitalink Common Stock, par value $.01 per
share (the "Vitalink Common Stock"), was converted in the merger into the right
to receive (i) .045 shares of Genesis Series G Cumulative Convertible Preferred
Stock, par value $.01 per share (the "Genesis Preferred"), (ii) $22.50 in cash,
or (iii) a combination of cash and shares of Genesis Preferred (collectively,
the "Merger Consideration"). The Merger Consideration paid to stockholders of
Vitalink to acquire their shares (including shares which may have been issued
upon the exercise of outstanding options) was $590,200, of which 50% was paid in
cash and 50% in Genesis Preferred. The Genesis Preferred has a face value of
approximately $295,100 and an initial dividend of 5.9375% and generally is not
transferable without the consent of the Company. The Genesis Preferred is
convertible into Genesis common stock, par value $.02 per share (the "Common
Stock"), at $37.20 per share and it may be called for conversion after April 26,
2001, provided the price of Common Stock reaches certain trading levels and
after April 26, 2002, subject to a market-based call premium. Vitalink's total
net revenues for the fiscal years ended May 31, 1997 and 1998, were $274,000 and
$494,000, respectively. As a result of the merger, Genesis assumed approximately
$87,000 of indebtedness Vitalink had outstanding. The cash portion of the
purchase price was funded through borrowings under the Credit Facility, as
defined. The Vitalink Transaction is being accounted for under the purchase
method and the related goodwill is being amortized over a forty year period.
Pursuant to four agreements with HCR-Manor Care, Vitalink provides
pharmaceutical products and services, enteral and parenteral therapy supplies
and services, urological and ostomy products, intravenous products and services
and pharmacy consulting services to facilities operated by HCR-Manor Care (the
"Services Contracts"). Vitalink is not restricted from providing similar
contracts to non-HCR-Manor Care facilities. The current term of each of the
Service Contracts extends through September 2004, subject to annual renewals
provided therein.
Multicare Transaction
In October 1997, Genesis ElderCare Corp., a Delaware Corporation owned 43.6% by
Genesis and the remainder by The Cypress Group (together with its affiliates,
"Cypress"), TPG Partners II, L.P., (together with its affiliates, "TPG") and
Nazem, Inc. (together with its affiliates "Nazem"), acquired The Multicare
Companies, Inc. ("Multicare"), pursuant to a tender offer (the "Tender Offer")
and the merger (the "Merger" or the "Multicare Transaction"). Multicare is in
the business of providing eldercare and specialty medical services in selected
geographic regions. Included among the operations acquired by Genesis ElderCare
Corp. are operations relating to the provision of (i) eldercare services
including skilled nursing care, assisted living, Alzheimer's care and related
support activities traditionally provided in eldercare facilities, (ii)
specialty medical services consisting of (1) sub-acute care such as ventilator
care, intravenous therapy and various forms of coma, pain and wound management
and (2) rehabilitation therapies such as occupational, physical and speech
therapy and stroke and orthopedic rehabilitation and (iii) management services
and consulting services to eldercare centers.
45
<PAGE>
In connection with the Merger, Multicare and Genesis entered into a management
agreement (the "Management Agreement") pursuant to which Genesis manages
Multicare's operations. The Management Agreement has a term of five years with
automatic renewals for two years unless either party terminates the Management
Agreement. Genesis is paid a fee of six percent of Multicare's net revenues for
its services under the Management Agreement provided that payment of such fee in
respect of any month in excess of the greater of (i) $1,992 and (ii) four
percent of Multicare's consolidated net revenues for such month, shall be
subordinate to the satisfaction of Multicare's senior and subordinate debt
covenants; and provided, further, that payment of such fee shall be no less than
$23,900 in any given year. Under the Management Agreement, Genesis is
responsible for Multicare's non-extraordinary sales, general and administrative
expenses (other than certain specified third-party expenses), and all other
expenses of Multicare will be paid by Multicare. Genesis also entered into an
asset purchase agreement (the "Therapy Purchase Agreement") with Multicare and
certain of its subsidiaries pursuant to which Genesis acquired all of the assets
used in Multicare's outpatient and inpatient rehabilitation therapy business for
$24,000 subject to adjustment (the "Therapy Purchase") and a stock purchase
agreement (the "Pharmacy Purchase Agreement") with Multicare and certain
subsidiaries pursuant to which Genesis acquired all of the outstanding capital
stock and limited partnership interests of certain subsidiaries of Multicare
that are engaged in the business of providing institutional pharmacy services to
third parties for $50,000 (the "Pharmacy Purchase"), subject to adjustment. The
Company completed the Pharmacy Purchase effective January 1, 1998, which was
accounted for under the purchase method and the related goodwill is being
amortized over forty years. The Therapy Purchase was completed in October 1997
and is accounted for under the purchase method with the related goodwill
amortized over twenty years.
In addition, Genesis, Cypress, TPG and Nazem entered into an agreement (the
"Put/Call Agreement") pursuant to which, among other things, Genesis has the
option, on the terms and conditions set forth in the Put/Call Agreement to
purchase (the "Call") Genesis ElderCare Corp. Common Stock held by Cypress, TPG
and Nazem commencing on October 9, 2001 and for a period of 270 days thereafter,
at a price determined pursuant to the terms of the Put/Call Agreement. Cypress,
TPG and Nazem have the option, on the terms and conditions set forth in the
Put/Call Agreement, to require Genesis to purchase (the "Put") such Genesis
ElderCare Corp. common stock commencing on October 9, 2002 and for a period of
one year thereafter, at a price determined pursuant to the Put/Call Agreement.
Genesis Eldercare Corp. paid approximately $1,492,000 to (i) purchase the shares
pursuant to the Tender Offer and the Merger, (ii) pay fees and expenses incurred
in connection with the completion of the Tender Offer, Merger and the financing
transactions in connection therewith, (iii) refinance certain indebtedness of
Multicare and (iv) make certain cash payments to employees. Of the funds
required to finance the foregoing, approximately $745,000 were furnished as
capital contributions by the Genesis Eldercare Corp. from the sale of its common
stock to Cypress, TPG, Nazem and Genesis. Cypress, TPG and Nazem purchased
shares of Genesis ElderCare Corp. common stock for a purchase price of $210,000,
$199,500 and $10,500, respectively, and Genesis purchased shares of Genesis
ElderCare Corp. common stock for a purchase price of $325,000 in consideration
for 43.6% of the common stock of Genesis ElderCare Corp. The balance of the
funds necessary to finance the foregoing came from (i) the proceeds of loans
from a syndicate of lenders in the aggregate amount of $525,000 and (ii)
$246,800 of bridge financing which was refinanced upon completion of the sale of
9% Senior Subordinated Notes due 2007 sold by a subsidiary of Genesis ElderCare
Corp. on August 11, 1997.
The prices determined for the Put and Call are based on a formula that
calculates the equity value attributable to Cypress', TPG's and Nazem's Genesis
ElderCare Corp. common stock, plus a portion of the Genesis pharmacy business
(the "Calculated Equity Value"). The Calculated Equity Value will be determined
based upon a multiple of Genesis ElderCare Corp.'s earnings before interest,
taxes, depreciation, amortization and rental expenses, as adjusted ("EBITDAR")
after deduction of certain liabilities, plus a portion of the EBITDAR related to
the Genesis pharmacy business. The multiple to be applied to EBITDAR will depend
on whether the Put or the Call is being exercised. Any payment to Cypress, TPG
or Nazem under the Call or the Put may be in the form of cash or Genesis Common
Stock at Genesis' option.
46
<PAGE>
Upon exercise of the Call, Cypress, TPG and Nazem will receive at a minimum
their original investment plus a 25% compound annual return thereon regardless
of the Calculated Equity Value. Any additional Calculated Equity Value
attributable to Cypress', TPG's or Nazem's Genesis ElderCare Corp. common stock
will be determined on the basis set forth in the Put/Call Agreement which
provides generally for additional Calculated Equity Value of Genesis ElderCare
Corp. to be divided based upon the proportionate share of the capital
contributions of the stockholders to Genesis ElderCare Corp. Upon exercise of
the Put by Cypress, TPG or Nazem, there will be no minimum return to Cypress,
TPG or Nazem; and any payment to Cypress, TPG or Nazem will be limited to
Cypress' TPG's or Nazem's share of the Calculated Equity Value based upon a
formula set forth in the terms of the Put/Call Agreement.
Cypress', TPG's and Nazem's rights to exercise the Put will be accelerated upon
an event of bankruptcy of Genesis, a change of control of Genesis, an
extraordinary dividend or distribution or the occurrence of the leverage
recapitalization of Genesis. Upon an event of acceleration or the failure by
Genesis to satisfy its obligations upon exercise of the Put, Cypress, TPG and
Nazem will have the right to terminate the Stockholders' Agreement, dated
October 9, 1997, by and among the Company, Genesis ElderCare Corp., Cyrpess, TPG
and Nazem, and the Management Agreement and to control the sale or liquidation
of Genesis ElderCare Corp. In the event of such sale, the proceeds from such
sale will be distributed among the parties as contemplated by the formula for
the Put option exercise price and Cypress, TPG and Nazem will retain a claim
against Genesis for the difference, if any, between the proceeds of such sale
and the put option exercise price. In the event of a bankruptcy or change of
control of Genesis, the option price shall be payable solely in cash provided
any such payment will be subordinated to the payment of principal and interest
under the Credit Facility.
Geriatric & Medical Companies, Inc.
Effective October 1, 1996, Geriatric & Medical Companies, Inc. ("GMC") merged
with a wholly-owned subsidiary of Genesis (The "GMC Transaction"). Under the
terms of the merger agreement, GMC shareholders received $5.75 per share in cash
for each share of GMC stock. The total consideration paid, including assumed
indebtedness of approximately $132,000, was approximately $223,000. The merger
was financed in part with approximately $121,250 in net proceeds from an
offering of 9 1/4% Senior Subordinated Notes issued in October of 1996. The
remaining consideration was financed through borrowings under the Company's bank
credit facility. The GMC Transaction, added to Genesis 24 owned eldercare
centers with approximately 3,300 beds. GMC also operates businesses which
provide a number of ancillary healthcare services including ambulance services;
respiratory therapy, infusion therapy and enteral therapy; distribution of
durable medical equipment and home medical supplies; and information management
services. The acquisition was accounted for as a purchase with the related
goodwill being amortized over a period of forty years.
National Health Care Affiliates
In July 1996, the Company acquired the outstanding stock of National Health Care
Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation,
Eidos, Inc. and Versalink, Inc. (collectively "National Health"). Prior to the
closing of the stock acquisitions, an affiliate of a financial institution
purchased nine of the eldercare centers for $67,700 and subsequently leased the
centers to a subsidiary of Genesis under operating lease agreements and a then
existing $85,000 lease financing facility. The balance of the total
consideration paid to National Health was funded with available cash of $51,800
and assumed indebtedness of $7,900. National Health added 16 eldercare centers
in Florida, Virginia and Connecticut with approximately 2,200 beds to Genesis.
National Health also provides enteral nutrition and rehabilitation therapy
services to the eldercare centers which it owns and leases. The acquisition was
accounted for as a purchase, with the related goodwill being amortized over 40
years.
47
<PAGE>
NeighborCare Pharmacies, Inc.
In June 1996, the Company acquired the outstanding stock of NeighborCare
Pharmacies, Inc. ("NeighborCare") a privately held institutional pharmacy,
infusion therapy and retail pharmacy business based in Baltimore, Maryland.
Total consideration was approximately $57,250, comprised of approximately
$47,250 in cash and 312,744 shares of Genesis Common Stock. The acquisition was
accounted for as a purchase, with the related goodwill being amortized over 40
years. .
McKerley Health Care
On November 30, 1995, the Company acquired McKerley Health Care Centers
("McKerley") for total consideration of approximately $68,700. The transaction
(the "McKerley Transaction") also provided for up to an additional $6,000 of
contingent consideration payable upon the achievement of certain financial
objectives through October 1997, of which $4,000 was paid in February 1997.
McKerley added to Genesis 15 geriatric care facilities in New Hampshire and
Vermont with a total of 1,535 beds. McKerley also operates a home healthcare
company. The acquisition was financed with borrowings under the Credit Facility
and assumed indebtedness. The acquisition was accounted for as a purchase, with
the related goodwill being amortized over 40 years.
Other Transactions
In December 1997, the Company purchased approximately 1,000,000 long-term call
options on the Company's Common Stock. The Company's Board of Directors approved
the purchase of up to 1,500,000 call options. The call options are purchased by
the Company in privately negotiated transactions designated to take advantage of
attractive share price levels, as determined by the Company's management, in
compliance with covenants governing existing financing arrangements. The timing
and the terms of the transactions, including maturities, will depend on market
conditions, the Company's liquidity and covenant requirements under its
financing arrangements, and other considerations. The Board of Directors also
approved a Senior Executive Stock Ownership Program. Under the terms of the
program, certain of the Company's current senior executive employees will be
required to own shares of the Company's Common Stock having a market value based
upon a multiple of the executive's salary. Each executive is required to own the
shares within three years of the date of the adoption of the program. Subject to
applicable laws, the Company may lend funds to one or more of the senior
executive employees for his or her purchase of the Company's Common Stock. As of
September 30, 1998, the Company loaned approximately $3,000,000 to senior
executive employees to purchase the Company's Common Stock.
In March 1996, the Company sold four eldercare centers and a pharmacy in Indiana
for approximately $22,250. The net sale proceeds were used to repay indebtedness
under the Company's credit facility.
In March 1996, the Company acquired for total consideration of approximately
$31,900, including the payment of assumed debt, the remaining approximately 71%
joint venture interests of four eldercare centers in Maryland and the remaining
50% joint venture interest of an eldercare center in Florida. The acquisition
was accounted for as a purchase.
48
<PAGE>
The following unaudited pro forma statement of operations information
gives effect to the Multicare Transaction, the Therapy Purchase, the Pharmacy
Purchase and the Vitalink Transaction described above as though they had
occurred on October 1, 1996, after giving effect to certain adjustments,
including amortization of goodwill, additional depreciation expense, increased
interest expense on debt related to the acquisition and related income tax
effects. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the acquisitions occurred at
the beginning of the respective fiscal years.
(Unaudited) 1998 1997
- ------------------------------------------------------------------------------
Pro Forma Statement of Operations Information:
- ------------------------------------------------------------------------------
Total net revenues $1,878,622 $1,718,010
Earnings (loss) before extraordinary item (31,068) 34,793
Net income (loss) available to common shareholders (32,992) 34,240
Diluted earnings (loss) per common share before
extraordinary item (0.88) 0.96
Diluted earnings (loss) per common share $ (0.94) $ 0.95
- ------------------------------------------------------------------------------
(3) Investments in Marketable Securities
Marketable securities at September 30, 1998 consist of the following:
Amortized Unrealized Fair
cost gains Value
------------------------------------------
U.S Treasury Notes $ 3,102 $ 36 $ 3,138
Mortgage backed securities 12,016 809 12,825
Corporate bonds 6,651 197 6,848
Money market funds 3,837 10 3,847
------------------------------------------
$25,606 $1,052 $26,658
------------------------------------------
Marketable securities at September 30, 1997 consist of the following:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
cost gains losses Value
------------------------------------------------------
<S> <C> <C> <C> <C>
U.S Treasury Bills $ 942 $ - $ - $ 942
U.S. Treasury Notes 2,094 - (17) 2,077
Mortgage backed securities 11,496 169 (5) 11,660
Money market funds 50 - - 50
------------------------------------------------------
$14,582 $169 $(22) $14,729
------------------------------------------------------
</TABLE>
49
<PAGE>
Fixed interest securities held at September 30, 1998 and 1997 mature as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------
Amortized Fair Amortized Fair
cost value cost value
----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 3,001 $ 3,015 $ 1,439 $ 1,440
Due after 1 year through 5 years 8,187 8,427 6,904 7,045
Due after 5 years through 10 years 8,999 9,712 6,189 6,194
Due after 10 years 1,582 1,657 - -
----------------------------------------------------
$21,769 $22,811 $14,532 $14,679
----------------------------------------------------
</TABLE>
Actual maturities may differ from stated maturities because borrowers have the
right to call or prepay certain obligations with or without prepayment
penalties. There were no significant realized gains or losses in 1998, 1997 or
1996.
(4) Property, Plant and Equipment
Property, plant and equipment at September 30, 1998 and 1997 consist of the
following:
September 30,
1998 1997
- --------------------------------------------------------------------------
Land $ 39,244 $ 38,163
Land improvements 5,656 5,064
Buildings 451,440 471,520
Equipment, furniture and fixtures 180,632 120,734
Construction in progress 40,778 36,456
- --------------------------------------------------------------------------
717,750 671,937
Less accumulated depreciation (121,188) (93,540)
- --------------------------------------------------------------------------
Net property, plant and equipment $596,562 $578,397
- --------------------------------------------------------------------------
(5) Long-term Debt
Long-term debt at September 30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
September 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Secured - due 1999 to 2034;
7.38% to 11.60% (weighted average interest rate 1998 - 8.47%;
1997 - 7.76%) $1,151,292 $ 401,484
Unsecured - due 1999 to 2008
6.64% to 11.00% (weighted average interest rate 1998 - 9.44%;
1997 - 9.43%) 251,915 252,670
- ------------------------------------------------------------------------------------------------------------
1,403,207 654,154
Plus:
Debt premium, net of amortization 5,482 6,032
Less:
Debt discount, net of amortization (382) (246)
Current installments and short-term borrowings (49,712) (8,273)
- ------------------------------------------------------------------------------------------------------------
1,358,595 $651,667
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 and 1997, the Company's long-term debt included
approximately $1,032,889 and $300,000 of floating rate debt based on Prime or
LIBO Rate with weighted average interest rates of 8.36% and 7.10%, respectively.
At September 30, 1998 and 1997, the Company's long-term debt consisted of
approximately $370,318 and $354,154 of fixed rate debt with weighted average
interest rates of 9.40% and 9.42%, respectively.
50
<PAGE>
Genesis entered into a credit agreement pursuant to which the lenders provided
Genesis and its subsidiaries a credit facility totaling $1,250,000 (the "Credit
Facility") for the purpose of: refinancing certain existing indebtedness of
Genesis; funding interest and principal payments on the facilities and certain
remaining indebtedness; funding permitted acquisitions; funding Genesis'
commitments in connection with the Vitalink Transaction; and funding Genesis'
and its subsidiaries' working capital for general corporate purposes, including
fees and expenses of the transactions. The Credit Facility consists of three
$200,000 term loans (collectively, the "Term Loans"), a $650,000 revolving
credit loan (the "Revolving Facility") which includes one or more Swing Loans
(collectively, the "Swing Loan Facility") in integral principal multiples of
$500 up to an aggregate unpaid principal amount of $15,000. The Term Loans
amortize in quarterly installments beginning in Fiscal 1998 through 2005, of
which $24,419 is payable in Fiscal 1999. The Term Loans consist of (i) a
$200,000 six year term loan (the "Tranche A Term Facility"); (ii) a $200,000
seven year term loan (the "Tranche B Term Facility"); and (iii) a $200,000 eight
year term loan (the "Tranche C Term Facility"). The Revolving Facility becomes
payable in full on September 30, 2003. The third amendment to the Credit
Facility, dated December 15, 1998, made the financial covenants for certain
periods less restrictive, permitted the proceeds of subordinated debt offerings
to repay indebtedness under the Revolving Facility and increased the interest
rates applying to the Term Loans and the Revolving Facility. The revised
financial covenants reflect the impact of PPS and the non-cash charges in the
fourth quarter of 1998.
The Credit Facility is secured by a first priority security interest in all of
the stock, partnership interests and other equity of all of Genesis' present and
future subsidiaries (including Genesis Elder Care Corp.) other than the stock of
Multicare and its subsidiaries. Loans under the Credit Facility bear, at
Genesis' option, interest at the per annum Prime Rate as announced by the
administrative agent, or the applicable Adjusted LIBO Rate plus, in either
event, a margin that is dependent upon a certain financial covenant test. The
following interest rates reflect the impact of the third amended credit facility
entered into subsequent to fiscal year end. Loans under the Tranche A Term
Facility and Revolving Facility bear interest at an annual rate of .75% for
Prime Rate loans and 2.5% for LIBO Rate loans (8.14% at September 30, 1998).
Loans under the Tranche B Term Facility bear interest at an annual rate of 1.25%
for Prime Rate loans and 3.0% for LIBO Rate loans (8.64% at September 30, 1998).
Loans under the Tranche C Term Facility bear interest at an annual rate of 1.5%
for Prime Rate loans and 3.25% for LIBO Rate loans (8.89% at September 30,
1998). Loans under the Swing Loan Facility bear interest at the Prime Rate
unless otherwise agreed to by the parties. Subject to meeting certain financial
covenants, the above referenced interest rates are reduced.
The Credit Facility contains a number of covenants that, among other things,
restrict the ability of Genesis and its subsidiaries to dispose of assets, incur
additional indebtedness, make loans and investments, pay dividends, engage in
mergers or consolidations, engage in certain transactions with affiliates and
change control of capital stock, and to make capital expenditures; prohibit the
ability of Genesis and its subsidiaries to prepay debt to other persons, make
material changes in accounting and reporting practices, create liens on assets,
give a negative pledge on assets, make acquisitions and amend or modify
documents; causes Genesis and its affiliates to maintain the Management
Agreement, the Put/Call Agreement, as defined, and corporate separateness; and
will cause Genesis to comply with the terms of other material agreements, as
well as comply with usual and customary covenants for transactions of this
nature.
In December 1998, subsequent to the fiscal year end, the Company issued
$125,000, 9 7/8% Senior Subordinated Notes due 2009. Interest on the notes are
payable semi-annually on January 15 and July 15 of each year, commencing July
15, 1999. The Company expects that approximately $59,950 of the net proceeds
will be used to repay portions of the Tranche A, B and C Term Facilities and
approximately $59,950 of the net proceeds will be used to repay a portion of the
Revolving Facility.
In October 1996, the Company completed an offering of $125,000 9 1/4% Senior
Subordinated Notes due 2006. Interest is payable on April 1 and October 1 of
each year. The Company used the net proceeds of approximately $121,250, together
with borrowings under the Credit Facility, to pay the cash portion of the
purchase price of the GMC Transaction, to repay certain debt assumed as a result
of the GMC Transaction and to repurchase GMC accounts receivable which were
previously financed.
51
<PAGE>
In November 1996, the Company called for redemption of the then outstanding 6%
Convertible Senior Subordinated Debentures (the Debentures) at a redemption
price equal to 104.2% of the principal amount. The Debenture holders had the
option to tender Debentures at the redemption price or to convert the Debentures
into Common Stock at a conversion price of $15.104 per share. In connection with
the early conversion of a portion of the Debentures converted during fiscal
1996, the Company paid approximately $1,245 representing the prepayment of
interest to converting debenture holders. The non-recurring cash payment is
presented as debenture conversion expense in the 1996 statement of operations.
In June 1995, the Company completed an offering of $120,000 of 9 3/4 % Senior
Subordinated Notes due 2005. Interest is payable on the notes on June 15 and
December 15 of each year. The notes are redeemable at the option of the Company
in whole or in part, at any time, on or after June 15, 2000 at a redemption
price initially equal to 104.05% of the principal amount and decreasing annually
thereafter. The Company used the net proceeds from the notes offering to repay a
portion of the Credit Facility.
At September 30, 1998, sinking fund requirements and installments of long-term
debt are as follows:
Principal
Year ending September 30, Amount
- -----------------------------------------------------------------------
1999 $ 49,712
2000 48,883
2001 38,874
2002 44,376
2003 574,117
Thereafter $652,345
- -----------------------------------------------------------------------
The Company enters into interest rate swap agreements to manage interest costs
and risks associated with changing interest rates. These agreements generally
convert underlying variable-rate debt based on LIBO Rates into fixed-rate debt.
At September 30, 1998, the notional principal amount of these agreements totaled
$1,100,000 with a net fixed notional amount of $370,000 whereby the Company made
quarterly payments at a weighted average fixed rate of 5.00% and received
quarterly payments at floating rates based on three month LIBO Rate
(approximately 5.64% at September 30, 1998). At September 30, 1997, the notional
principal amount of these agreements totaled $400,000 whereby the Company made
quarterly payments at a weighted average fixed rate of 5.45% and received
payments at a floating rate based on three month LIBO Rate (approximately 5.78%
at September 30, 1997).
Interest of $3,526 in 1998, $2,156 in 1997 and $1,191 in 1996, was capitalized
in connection with facility construction, systems development and renovations.
During fiscal 1998 and 1997, the Company recorded extraordinary losses, net of
tax, of $1,924 and $553, respectively related to the early retirement of debt.
The Company is restricted from declaring any dividends on its Common Stock or
authorizing any other distribution on account of ownership of its capital stock
unless certain conditions are met.
52
<PAGE>
(6) Leases and Lease Commitments
The Company leases certain facilities and equipment under operating leases.
Future minimum payments for the next five years under operating leases at
September 30, 1998 were as follows:
Minimum
Year ending September 30, Payment
- ---------------------------------------------------------------------
1999 $40,545
2000 35,712
2001 32,550
2002 25,674
2003 $24,002
- ---------------------------------------------------------------------
Excluded from the future minimum lease payments above in the year 2001 is
approximately $78,600 related to a residual value guarantee due under a lease
financing facility.
On January 30, 1998, Genesis completed deleveraging transactions with
ElderTrust, a newly formed Maryland healthcare real estate investment trust.
Genesis, a co-registrant on the ElderTrust initial public offering, received
approximately $78,000 in proceeds from the sale and leaseback of 13 properties
to ElderTrust, including four properties it had purchased from Crozer-Keystone
Health System in anticipation of resale to ElderTrust. The sale of properties to
ElderTrust resulted in a gain of approximately $12,000 which has been deferred
and is being amortized over the ten year term of the lease contracts with
ElderTrust. In September 1998, the Company sold its leasehold rights and option
to purchase seven eldercare facilities acquired in its November 1993 acquisition
of Meridian Healthcare, Inc. to ElderTrust for $44,000, including $35,500 in
cash and an $8,500 note. As part of the transaction, Genesis will continue to
sublease the facilities for ten years with an option to extend the lease until
2018 at an initial annual lease obligation of approximately $10,000. The
transaction resulted in a gain of approximately $43,700 which has been deferred
and is being amortized over the ten year lease term of the lease contracts with
ElderTrust.
(7) Patient Service Revenue
The distribution of net patient service revenue by class of payor for the years
ended September 30, 1998, 1997 and 1996 was as follows:
Year ended September 30,
Class of payor 1998 1997 1996
- ------------------------------------------------------------------------
Private pay and other $ 581,128 $ 414,187 $251,244
Medicaid 451,989 385,313 229,838
Medicare 258,279 252,845 157,362
- ------------------------------------------------------------------------
$1,291,396 $1,052,345 $638,444
- ------------------------------------------------------------------------
The above revenue amounts are net of third-party contractual allowances of
$278,804, $213,250 and $122,136, in 1998, 1997 and 1996, respectively. The
Company has recorded cost report receivables from third-party payors (i.e.,
Medicare and Medicaid) of $62,257 and $60,865 at September 30, 1998 and 1997,
respectively. These amounts at September 30, 1998 are due primarily from
Massachusetts ($17,700), Pennsylvania ($5,700), Florida ($2,400) and Medicare
($35,600) for the 1994 through 1998 cost reporting periods. The Company recorded
bad debt expense of $18,016, $12,615 and $4,382 in 1998, 1997 and 1996,
respectively.
53
<PAGE>
(8) Income Taxes
Total income tax expense (benefit) for the years ended September 30, 1998, 1997
and 1996 was as follows:
Year ended September 30,
1998 1997 1996
- --------------------------------------------------------------------------------
Income (loss) before extraordinary item $(8,158) $27,088 $20,917
Extraordinary item (1,106) (318) -
- --------------------------------------------------------------------------------
Total $(9,264) $26,770 $20,917
- --------------------------------------------------------------------------------
The components of the provision (benefit) for income taxes for the years ended
September 30, 1998, 1996 and 1995 were as follows:
Year ended September 30,
1998 1997 1996
- ---------------------------------------------------------------
Current:
Federal $ - $ 5,370 $14,508
State - 695 1,295
- ---------------------------------------------------------------
$ - $ 6,065 $15,803
- ---------------------------------------------------------------
Deferred:
Federal $(7,163) $20,781 $ 4,595
State (995) 242 519
- ---------------------------------------------------------------
$(8,158) $21,023 $ 5,114
- ---------------------------------------------------------------
Total $(8,158) $27,088 $20,917
- ---------------------------------------------------------------
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to net income before income taxes and
extraordinary items as a result of the following:
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(10,838) $26,331 $20,330
Increase (reduction) in income taxes resulting from :
State and local income taxes (benefit), net of
federal tax benefits (463) 364 1,179
Amortization of goodwill 3,840 693 235
Targeted jobs tax credits (1,073) (300) -
Tax exempt interest - - (770)
Other, net 376 - (57)
- ----------------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ (8,158) $27,088 $20,917
- ----------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
The sources of the differences between consolidated earnings for financial
statement purposes and tax purposes and the tax effects are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Excess tax depreciation expense versus book
depreciation $ 973 $ 2,525 $1,157
Excess tax gains versus book gains (7,275) (200) (895)
Amortization of deferred gain on sale and leaseback - - 49
Utilization of net operating loss carryforward - 200 (600)
Accrued liabilities and reserves 820 15,000 676
Goodwill 3,689 3,575 3,661
Prepaid rent - - 1,146
Net operating loss (6,128) - -
Other (237) (77) (80)
- -----------------------------------------------------------------------------------------------------------
Net deferred tax provision $(8,158) $21,023 $5,114
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1998
and 1997 are presented below:
September 30,
1998 1997
- --------------------------------------------------------------------------
Deferred Tax Assets
Accounts receivable $ - $ 5,480
Accrued compensation 444 601
Amortization of deferred gain - 47
Debt premium 2,144 2,144
Accrued liabilities and reserves 11,225 7,966
Net operating loss carryforwards 10,128 4,000
Other, net 1,017 -
- --------------------------------------------------------------------------
Deferred tax assets 24,958 20,238
- --------------------------------------------------------------------------
Valuation allowance (3,400) (3,400)
- --------------------------------------------------------------------------
Net deferred tax assets 21,558 $16,838
- --------------------------------------------------------------------------
Deferred Tax Liabilities
Accounts receivable (3,464) -
Goodwill and other intangibles (39,861) (10,695)
Depreciation (50,242) (43,888)
Accrued liabilities and reserves (819) -
- --------------------------------------------------------------------------
Total deferred tax liability (94,386) (54,583)
- --------------------------------------------------------------------------
Net deferred tax liability $(72,828) $(37,745)
- --------------------------------------------------------------------------
The deferred tax assets related to state net operating loss carryforwards are
available to reduce future state income taxes payable, subject to applicable
carryforward rules and limitations. Due to these limitations, the Company has
established a valuation allowance of $3,400. The net operating loss
carryforwards expire in years 1999 through 2002.
55
<PAGE>
(9) Notes Receivable and Other Investments
Notes receivable and other investments at September 30, 1998 and 1997 consist of
the following:
September 30,
1998 1997
- -------------------------------------------------------------------------------
Mortgage notes and other notes receivable $41,011 $ 92,164
Investments in non marketable securities 6,612 16,550
- -------------------------------------------------------------------------------
$47,623 $108,714
- -------------------------------------------------------------------------------
Mortgage notes and other notes receivable at September 30, 1998 bear interest at
rates ranging from 7 1/2% to 10% and mature at various times ranging from 1999
to 2006. Approximately $30,869 of the mortgage notes and other notes are secured
by first or second mortgage liens on underlying facilities and personal
property, accounts receivable, inventory and / or gross facility receipts, as
defined.
At September 30, 1997 and 1998, the Company held $10,000 of convertible
preferred stock of Doctors Health, Inc. ("Doctors Health"), an independent
physician owned and controlled integrated delivery system and practice
management company based in Maryland. The convertible preferred stock, which is
accounted for under the cost method, carries an 8% cumulative dividend and is
convertible into common stock, and if converted would represent an approximate
10% ownership interest in Doctors Health. Also, the Company loaned to Doctors
Health $5,000 at an annual interest rate of 11%. On November 16, 1998, a
voluntary petition for Chapter 11 bankruptcy was filed by Doctors Health. In the
fourth quarter of 1998, the Company wrote-off its investment in and loan to
Doctors Health.
During the twelve months ended September 30, 1998, notes receivable and other
investments declined approximately $61,100 principally due to the restructuring
and repayment of a $45,000 mortgage loan and a $10,000 working capital loan with
11 managed eldercare centers in Florida, the impairment write-off of the
Company's convertible preferred stock investment and note receivable with
Doctors Health, offset by an $8,500 note extended to ElderTrust in connection
with the sale of leasehold rights and an option to purchase seven eldercare
centers.
The Company has agreed to provide third parties, including facilities under
management contract, with $21,944 of working capital lines of credit. The unused
portion of working capital lines of credit was $8,322 at September 30, 1998.
(10) Other Long-Term Assets
Other long-term assets at September 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
September 30,
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred financing fees, net $29,567 $12,939
Subordinated management fees receivable from Multicare 14,048 -
Property deposits and funds held in escrow 10,764 7,056
Funds held by trustee 1,415 1,661
Other, net 18,110 10,066
- ---------------------------------------------------------------------------------------
$73,904 $31,722
- ---------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
(11) Management Services and Other Income, Net
Included in management services and other income, net were the following:
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees earned in connection with management agreements $ 64,178 $18,959 $18,227
Service related businesses 27,809 28,043 9,023
Capitation revenue and transactions with acute care
providers 21,922 - -
Transactional items, net - 476 5,775
- ----------------------------------------------------------------------------------------------------------
$113,909 $47,478 $33,025
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In 1998, approximately $42,200 of management fees were earned in connection with
the management of the Multicare operations.
(12) Stock Option Plans
The Company has two stock option plans (the "Employee Plan" and the "Directors
Plan"). Under the Employee Plan, 6,250,000 shares of common stock were reserved
for issuance to employees including officers and directors. Options granted in
the Employee Plan prior to fiscal 1997 generally become excercisable over a five
year period, while options granted subsequent to fiscal 1996 vest 25% in the
year of the grant and 25% over each of the next three years. The options granted
in the Employee Plan expire 10 years from the date of grant. All options granted
under the Employee Plan have been at the fair market value of the common stock
on the date of grant. Presented below is a summary of the Employee Plan for the
three years ended September 30, 1998.
<TABLE>
<CAPTION>
Option Price Available
per Share Outstanding Exercisable for Grant
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995 $2.22 - $20.25 2,094,168 926,712 437,817
- --------------------------------------------------------------------------------------------------------------
Authorized - - - 750,000
Granted 19.50 - 31.87 1,010,998 - (1,010,998)
Became Exercisable - - 509,070 -
Exercised 5.33 - 20.25 (275,455) (275,455) -
Canceled - (136,269) - 136,269
- --------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $2.22 - $31.87 2,693,442 1,160,327 313,088
- --------------------------------------------------------------------------------------------------------------
Authorized - - - 750,000
Granted $25.00 - $35.25 933,672 - (933,672)
Became Exercisable - - 695,087 -
Exercised $5.33 - $32.88 (191,774) (191,774) -
Canceled - (13,515) - 13,515
- --------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $2.22 - $35.25 3,421,825 1,663,640 142,931
- --------------------------------------------------------------------------------------------------------------
Authorized - - - 1,750,000
Granted $27.12 - $28.75 1,056,905 - (1,056,905)
Became Exercisable - - 757,849 -
Exercised $5.33 - $32.88 (75,052) (75,052) -
Canceled - (249,190) - 249,190
- --------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $2.22 - $35.25 4,154,488 2,346,437 1,085,216
- --------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
In March 1992, the Company adopted, and in February 1993, the shareholders
approved, the Directors Plan. Pursuant to the Directors Plan, options may be
granted for an aggregate of 225,000 shares of common stock. The Directors Plan
terminates ten years after its approval by the shareholders. At September 30,
1998, there were 106,500 options outstanding and excercisable at grant prices
ranging from $7.33 to $35.25.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", and
applies APB Opinion No. 25 in accounting for its plans and, accordingly, has not
recognized compensation cost for stock option plans in its financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date consistent with the provisions of Statement 123, the Company's net
income (loss) would have been changed to the proforma amounts indicated below:
September 30,
1998 1997
- --------------------------------------------------------------------------------
Net income (loss) - as reported $(25,900) $47,591
Net income (loss) - pro forma (31,469) 38,955
Net income (loss) per share - as reported (diluted) (0.74) 1.32
Net income (loss) per share - pro forma (diluted) $ (0.90) $ 1.08
- --------------------------------------------------------------------------------
The fair value of stock options granted in 1998 and 1997 is estimated at the
grant date using the Black-Scholes option-pricing model with the following
assumptions for 1998 and 1997: dividend yield of 0% (1997 and 1998); expected
volatility of 56.17% (1998) and 37.3% (1997); a risk-free return of 5.9% (1997
and 1998); and expected lives of approximately 7 years (1998) and 8 years
(1997).
The following table summarizes information for stock options of the Employee
Plan and the Director Plan outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 - $10.00 412,419 3.10 $ 6.54 412,419 $ 6.54
$10.01 - $15.00 91,325 4.40 10.63 91,325 10.63
$15.01 - $20.00 604,925 5.70 16.89 537,425 16.81
$20.01 - $25.00 1,015,775 6.80 23.08 568,588 23.01
$25.01 - $30.00 1,741,594 8.50 28.94 644,985 29.08
$30.01 - $35.00 75,000 7.70 31.88 50,000 31.88
$35.01 - $40.00 319,950 8.00 35.25 148,195 35.25
- ------------------------------------------------------------------------------------------------
4,260,988 7.00 $23.80 2,452,937 $20.94
- ------------------------------------------------------------------------------------------------
</TABLE>
(13) Retirement Plan
The Company's retirement plan (the "Retirement Plan") is a cash deferred
profit-sharing plan covering all of the employees of the Company (other than
certain employees covered by a collective bargaining agreement) who have
completed at least 1,000 hours of service and twelve months of employment. Under
the 401(k) component, each employee may elect to contribute a portion of his or
her current compensation up to the maximum permitted by the Internal Revenue
Code or 15% (or for more highly compensated employees 2%) of such employee's
annual compensation. The Company may make a matching contribution each year as
determined by the Board of Directors. The Board of Directors may establish this
contribution at any level each year, or may omit such contribution entirely.
58
<PAGE>
The Company match since January 1995 has been based on years of service. For an
employee who has completed six years of service prior to the beginning of the
calendar year, he/she receives a match of $0.75 per $1.00 of contribution up to
4% of his/her salary. Therefore, if this employee contributes 4% or more of
his/her salary, the Company contributes 3% of his/her salary. If the employee
contributes less than 4%, the Company contributes $0.75 per $1.00 of
contribution.
If an employee has not completed six years of service, he/she is matched $0.50
per $1.00 of contribution up to 2% of his/her salary. Therefore, if this
employee contributes 2% or more of his/her salary, the Company contributes 1% of
his/her salary. If the employee contributes less than 2%, the Company
contributes $0.50 per $1.00 of contribution.
Under the profit sharing provisions of the Retirement Plan, the Company may make
an additional employer contribution as determined by the Board of Directors each
year. The Board of Directors may establish this contribution at any level each
year, or may omit such contribution entirely. It is the Company's intent that
employer contributions under the profit sharing provisions of the Retirement
Plan are to be made 50% in the form of Common Stock and 50% in cash, and are to
be made only if there are sufficient profits to do so. Profit sharing
contributions are allocated among the accounts of participants in the proportion
that their annual compensation bears to the aggregate annual compensation of all
participants. All employee contributions to the Retirement Plan are 100% vested.
Company contributions are vested in accordance with a schedule that generally
provides for vesting after five years of service with the Company (any
non-vested amounts that are forfeited by participants are used to reduce the
following year's contribution by the Company).
The Company recorded retirement plan expense for the 401(k) match and the
discretionary contribution of approximately $7,484, $3,516 and $1,877 for the
years ended September 30, 1998, 1997 and 1996, respectively.
(14) Commitments and Contingencies
The Company is self insured for the majority of its workers' compensation and
health insurance claims. The Company's maximum exposure is $500 per occurrence
for workers' compensation and $75 per year, per participant for health
insurance. The Company has elected to reinsure the first $500 per occurrence for
workers' compensation claims, through its wholly-owned captive insurance
company, Liberty Health Corp., LTD. The Company carries excess insurance with
commercial carriers for losses above $500 per workers' compensation claim, and
$75 per participant for health insurance. The provision for estimated workers'
compensation and health insurance claims includes estimates of the ultimate
costs for both reported claims and claims incurred but not reported.
The Company has guaranteed $14,195 of indebtedness of facilities under
management contract. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for guarantees,
loan commitments and letters of credit is represented by the dollar amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
financial instruments. The Company does not anticipate any material losses as a
result of these commitments.
Genesis is a party to litigation arising in the ordinary course of business.
Genesis does not believe the results of such litigation, even if the outcome is
unfavorable to the Company, would have a material adverse effect on its
consolidated financial position or results of operations.
59
<PAGE>
(15) Loss on Impairment of Assets
Due to specific events occurring in the fourth quarter of Fiscal 1998 and a
focus on core business operations in response to the Medicare Prospective
Payment System ("PPS"), the Company recorded non-cash charges before income
taxes of approximately $116,000, of which approximately $24,000 relates to the
impairment of one eldercare center and certain non-core businesses, including
the Company's ambulance business and certain non-core Medicare home health
operations; approximately $43,000 relates to investments in owned eldercare
centers and other assets the Company believes are impaired as a result of PPS;
approximately $23,000 relates to impaired investments in eldercare centers
previously owned or managed by the Company; and approximately $26,000 relates to
the Company's investment in Doctors Health, a medical care management company in
the Company's Chesapeake region. Approximately $95,000 of the non-cash
impairment charges are reflected in the Statement of Operations as loss on
impairment of assets and approximately $21,000 are included in other operating
expenses.
In the fourth quarter of Fiscal 1997, the Company completed an evaluation of its
physician service business and announced its intentions to restructure this
business, including the closure and possible sale of free standing service
sites, the restructuring of physician compensation arrangements and the
termination of certain staff. In connection with the plan and selected asset
impairments, the Company recorded a fourth quarter pretax charge of
approximately $5,700. In addition, the Company reached an agreement with BCBSMD
to insure, through a sub-capitation agreement, the health care benefits of
approximately 7,000 members of BCBSMD's Care First Medicare product. As a
result, the Company has recorded a liability and pretax impairment charge of
approximately $5,000 to accrue for the estimated loss inherent in the agreement.
The impairment charge also included a pretax charge of approximately $4,300
related to the write-off of selected assets deemed unrecoverable.
(16) Fair Value of Financial Instruments
The Company believes the carrying amount of cash and equivalents, accounts
receivable (net of allowance for doubtful accounts), cost report receivables,
prepaid expenses and other current assets, accounts payable, accrued expenses,
accrued compensation and accrued interest approximates fair value because of the
short-term maturity of these instruments.
The Company also believes the carrying value of mortgage notes and other notes
receivable, and non marketable debt securities approximate fair value based upon
the discounted value of expected future cash flows using interest rates at which
similar investments would be made to borrowers with similar credit quality and
for the same remaining maturities.
The fair value of interest rate swap agreements is the estimated amount the
Company would receive or pay to terminate the swap agreement at the reporting
date, taking into account current interest rates. The estimated amount the
Company would pay to terminate its interest rate swap agreements outstanding at
September 30, 1998 and 1997 is approximately $29,685 and $2,052, respectively.
The fair value of the Company's commitments to provide working capital lines of
credit and certain financial guarantees is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
Since the Company has not charged fees for currently outstanding commitments
there is no fair value of such financial instruments.
The fair value of the Company's fixed rate long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. At September
30, 1998 and 1997, the carrying value of fixed rate debt of $370,318 and
$354,154, respectively, approximates market value.
The fair value of the Company's floating rate debt approximates its fair value.
60
<PAGE>
(17) Summary Financial Information of Unconsolidated Affiliates
The following unaudited summary financial data for the Multicare Companies is as
of and for the twelve months ended September 30, 1998. Multicare is the
Company's only significant unconsolidated affiliate.
- -------------------------------------------------------------------
Total assets $1,698,955
Long-term debt 725,194
Total liabilities 965,718
Revenues 695,633
Net income $ 238
- -------------------------------------------------------------------
In 1998, the Company earned approximately $42,200 of management fees in
connection with the management of the Multicare operations and approximately
$30,900 of ancillary revenue in connection with services provided to Multicare
eldercare centers.
(18) Certain Significant Risks and Uncertainties
The following information is provided in accordance with the AICPA Statement of
Position No. 94-6, "Disclosure of Certain Significant Risks and Uncertainties."
In recent years, a number of laws have been enacted that have effected major
changes in the health care system, both nationally and at the state level. The
Balanced Budget Act of 1997 (the "Balanced Budget Act"), signed into law on
August 5, 1997, seeks to achieve a balanced federal budget, by, among other
things, reducing federal spending on the Medicare and Medicaid programs. With
respect to Medicare, the law mandated establishment of PPS for Medicare skilled
nursing facilities under which facilities will be paid a federal per diem rate
for most covered nursing facility services (including pharmaceuticals).
While the Company has prepared certain estimates of the impact of PPS, it is not
possible to fully quantify the effect of the recent legislation, the
interpretation or administration of such legislation or any other governmental
initiatives on the Company's business. Accordingly, there can be no assurance
that the impact of PPS will not be greater than estimated or that these
legislative changes or any future healthcare legislation will not adversely
affect the business of the Company.
61
<PAGE>
(19) Quarterly Financial Data (Unaudited)
The Company's unaudited quarterly financial information is as follows:
<TABLE>
<CAPTION>
Diluted
Earnings
Earnings (Loss) Per Diluted
(Loss) Before Share Before Earnings
Total Net Extraordinary Net Income Extraordinary (Loss)
Revenues Item (Loss) Item Per Share
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Quarter ended:
December 31, 1997 $ 302,565 $ 12,822 $ 10,898 $ 0.36 $ 0.31
March 31, 1998 344,299 14,568 14,568 0.41 0.41
June 30, 1998 352,526 15,991 15,991 0.45 0.45
September 30, 1998 405,915 (67,357) (67,357) (1.92) (1.92)
- ---------------------------------------------------------------------------------------------------------------
$1,405,305 $(23,976) $(25,900) $(0.68) $(0.74)
Quarter ended:
December 31, 1996 $ 258,544 $ 11,508 $ 10,955 $ 0.33 $ 0.32
March 31, 1997 273,263 13,494 13,494 0.37 0.37
June 30, 1997 284,463 15,556 15,556 0.43 0.43
September 30, 1997 283,553 7,586 7,586 0.21 0.21
- ---------------------------------------------------------------------------------------------------------------
$1,099,823 $48,144 $ 47,591 $ 1.34 $ 1.33
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings (loss) per share was calculated for each three month and the twelve
month period on a stand alone basis. As a result, the sum of the earnings per
share for the four quarters does not equal the earnings per share for the twelve
months. The fourth quarter of 1998 includes non-cash charges of approximately
$116,000 (see Note 15).
62
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Company's 1999 proxy statement to be filed
pursuant to General Instruction G(3) to the Form 10-K, except information
concerning certain Executive Officers of the Company which is set forth in Item
4.1 of this Report.
ITEM 11: EXECUTIVE COMPENSATION
Incorporated by reference from the Company's 1999 proxy statement to be filed
pursuant to General Instruction G(3) to the Form 10-K.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's 1999 proxy statement to be filed
pursuant to General Instruction G(3) to the Form 10-K.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's 1999 proxy statement to be filed
pursuant to General Instruction G(3) to the Form 10-K.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) Schedule
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 1998, 1997, and 1996. All other schedules not
listed have been omitted since the required information is
included in the financial statements or the notes thereto, or is
not applicable or required.
63
<PAGE>
(a)(3) Exhibits
No. Description
2.1(1) Agreement and Plan of Reorganization, dated September 19, 1993,
by and among Genesis Health Ventures, Inc., a Pennsylvania
corporation ("Genesis"), MI Acquisition Corporation, a
Pennsylvania corporation and a wholly-owned subsidiary of
Genesis, MHC Acquisition Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Genesis, PEI
Acquisition Corporation, a Pennsylvania corporation and a
wholly-owned subsidiary of Genesis, TW Acquisition Corporation,
a Pennsylvania corporation and a wholly-owned subsidiary of
Genesis, SRS Acquisition, a Pennsylvania corporation and a
wholly-owned subsidiary of Genesis, Meridian Healthcare, Inc.,
a Maryland corporation, Meridian Inc., a Maryland corporation
("MI"), Pharmacy Equities, Inc., a Maryland corporation, The
Tidewater Healthcare Shared Services Group, Inc., a Maryland
corporation, Staff Replacement Services, Inc., a Maryland
corporation, Michael J. Batza, Jr., Edward A. Burchell, Earl L.
Linehan, Roger C. Lipitz and Arnold I. Richman (collectively
the "Reorganization Agreement").
2.2(2) Amended and Restated Amendment to Reorganization Agreement
dated November 23, 1993.
2.3(3) Agreement made as of the 18th day of August, 1995 by and among
Genesis Health Ventures, Inc., a Pennsylvania corporation, and
Accumed, Inc., a New Hampshire corporation, McKerley Health
Care Centers, Inc., a New Hampshire corporation, McKerley
Health Care Center-Concord, Inc., a New Hampshire corporation,
McKerley Health Facilities, a New Hampshire general partnership
and McKerley Health Care Center-Concord, L.P., a New Hampshire
limited partnership (collectively, the "Purchase Agreement").
2.4(4) Amendment Number One to Purchase Agreement dated November 30,
1995.
2.5(13) Stock Purchase Agreement, dated April 21, 1996, by and among
Genesis Health Ventures, Inc., a Pennsylvania corporation, and
NeighborCare Pharmacies, Inc., a Maryland corporation,
Professional Pharmacy Services, Inc., a Maryland corporation,
Medical Services Group, Inc., a Maryland corporation, CareCard,
Inc., a Maryland corporation, Transport Services, Inc., a
Maryland corporation, Michael G. Bronfein, Jessica Bronfein,
Stanton G. Ades, Renee Ades, The Chase Manhattan Bank, N.A. and
PPS Acquisition Corp., a Maryland corporation and a
wholly-owned subsidiary of Genesis Health Ventures, Inc.
2.6(13) Merger Agreement, dated April 21, 1996, by and among
Professional Pharmacies, Inc., Genesis Health Ventures, Inc.
and PPS Acquisition Corp.
2.7(14) Purchase Agreement, dated May 3, 1996, by and among Mark E.
Hamister, Oliver C. Hamister, George E. Hamister, Julia L.
Hamister, The George E. Hamister Trust, The Oliver C. Hamister
Trust, National Health Care Affiliates, Inc., Oak Hill Health
Care Center, Inc., Derby Nursing Center Corporation, Delaware
Avenue Partnership, EIDOS, Inc., VersaLink Inc., certain other
individuals and Genesis Health Ventures, Inc.
2.8(14) Purchase Agreement Addendum, dated July 24, 1996, by and among
Mark E. Hamister, Oliver C. Hamister, George E. Hamister, Julia
L. Hamister, The George E. Hamister Trust, The Oliver C.
Hamister Trust, National Health Care Affiliates, Inc., Oak Hill
Health Care Center, Inc., Derby Nursing Center Corporation,
Delaware Avenue Partnership, EIDOS, Inc., VersaLink Inc.,
certain other individuals and Genesis Health Ventures, Inc.
64
<PAGE>
2.9(16) Agreement and Plan of Merger, dated as of July 11, 1996, by and
among Genesis Health Ventures, Inc., a Pennsylvania
corporation, Acquisition Corporation, a Delaware corporation,
and Geriatric & Medical Companies, Inc., a Delaware
corporation.
2.10(20) Stock Purchase Agreement dated October 10, 1997 among Genesis
Health Ventures, Inc., The Multicare Companies, Inc., Concord
Health Group, Inc., Horizon Associates, Inc., Horizon Medical
Equipment and Supply, Inc., Institutional Health Services,
Inc., Care4 L.P., Concord Pharmacy Services, Inc., Compass
Health Services, Inc. and Encare of Massachusetts, Inc.
2.11(20) Asset Purchase Agreement dated October 11, 1997 among Genesis
Health Ventures, Inc., The Multicare Companies, Inc., Health
Care Rehab Systems, Inc., Horizon Rehabilitation, Inc.,
Progressive Rehabilitation Centers, Inc., and Total
Rehabilitation Centers, L.L.C.
2.12(20) Agreement and Plan of Merger dated June 16, 1997 by and among
Genesis ElderCare Corp., Genesis ElderCare Acquisition Corp.,
Genesis Health Ventures, Inc., and the Multicare Companies,
Inc.
2.13(21) Agreement and Plan of Merger dated April 26, 1998, by and among
Genesis Health Ventures, Inc., V Acquisition Corp. and Vitalink
Pharmacy Services, Inc.
2.14(21) Amendment Number One to the Plan of Merger dated as of July 7,
1998.
3.1(5) The Company's Amended and Restated Articles of Incorporation.
3.2(24) The Company's Amended and Restated Bylaws.
3.3(9) Amendment to the Company's Articles of Incorporation, as filed
on March 11, 1994, with the Secretary of the Commonwealth of
Pennsylvania.
3.4 Amendment to the Company's Articles of Incorporation, as filed
on August 26, 1998, with the Secretary of the Commonwealth of
Pennsylvania.
4.1(2) Indenture dated as of November 30, 1993, between the Company
and First Fidelity Bank, N.A., Pennsylvania.
4.2(5) Specimen of Common Stock Certificate.
4.3(6) Specimen of the Company's First Mortgage Bonds (Series A) due
2007.
4.4(7) Indenture of Mortgage and Deed of Trust, dated as of September
1, 1992, by and among the Company, Delaware Trust Company and
Richard N. Smith.
4.5(12) Rights Agreement between Genesis Health Ventures, Inc. and
Mellon Securities Trust Company.
4.6(15) Indenture dated as of June 15, 1995 between the Company and
Delaware Trust Company.
4.7(15) Specimen of the Company's 9-3/4% Senior Subordinated Debentures
due 2005.
65
<PAGE>
4.8(17) Indenture dated as of October 7, 1996 between the Company and
First Union National Bank.
4.9(17) Specimen of the Company's 9-1/4% Senior Subordinated Notes due
2006.
4.10 Rights Agreement by and between the Company and Manor Care Inc.
dated April 26, 1998.
4.11 Indenture dated as of December 23, 1998 between the Company and
the Bank of New York.
4.12 Specimen of the Company's 9-7/8% Senior Subordinated Debentures
due 2009 (Attached as Exhibit A-1 to the Indenture dated
December 23, 1998 between the Company and the Bank of New York
attached hereto as Exhibit 4.11)
+10.1(5) The Company's Employee Retirement Plan, adopted January 1,
1989, as amended and restated Retirement Plan Trust Agreement.
+10.2(22) The Company's Amended and Restated Stock Option Plan.
+10.3(5) Lease Agreement, dated October 1, 1990, between Salisbury
Medical Office Building General Partnership ("SMOBGP") and Team
Rehabilitation, Inc.
+10.4(5) Lease Agreement, dated October 1, 1989, between SMOBGP and
Genesis Immediate Med Center, Inc.
+10.5(5) Purchase Agreement, dated October 1, 1987, among SMOBGP,
Genesis Pharmacy, Inc. and Genesis Immediate Med Center, Inc.
relating to the purchase of the assets, property and business
of Salisbury Pharmacy and Salisbury Immediate Med Center.
+10.6(5) Lease, dated October 1, 1989, between SMOBGP and ASCO, relating
to the Salisbury Regional Health Center.
+10.7(19) Ground Lease Agreement dated as of June 26, 1993, by and
between GHV Associates and the Company.
+10.8(9) Lease, dated January 1, 1995, between GHV Associates and the
Company, Team Rehabilitation, Inc. and Genesis Physician
Services, Inc.
+10.9(5) Agreement, dated April 19, 1991, between Nazem & Company, III,
L.P. and the Company.
+10.10(6) The Company's 1992 Stock Option Plan for Non-Employee
Directors.
+10.11(6) The Company's Incentive Compensation Program.
+10.12(6) The Company's Execuflex Plan, dated as of January 1, 1992, and
related Trust Agreement, dated December 10, 1991.
+10.13(2) Lease Agreement, dated as of November 30, 1993, by and between
Charlesmead Associates Limited Partnership, a Maryland limited
partnership, and MHC Acquisition Corporation, now known as
Meridian Healthcare, Inc., a Pennsylvania corporation.
66
<PAGE>
+10.14(2) Option Agreement, dated November 30, 1993, by and among the
Sellers identified therein, Charlesmead Associates Limited
Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.15(2) Lease Agreement, dated as of November 30, 1993, by and between
Cherry Hill Meridian Limited Partnership, a Maryland limited
partnership, and MHC Acquisition Corporation, now known as
Meridian Healthcare, Inc., a Pennsylvania corporation.
+10.16(2) Option Agreement, dated November 30, 1993, by and among the
Sellers, as indicated therein, Cherry Hill Meridian Limited
Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.17(6) Lease Agreement, dated as of November 30, 1993, by and between
Corsica Hills Associates Limited Partnership and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.18(2) Option Agreement, dated November 30, 1993, by and among the
Sellers, as identified therein, Corsica Hills Associates
Limited Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.19(2) Lease Agreement, dated as of November 30, 1993, by and between
Heritage Associates Limited Partnership, a Maryland limited
partnership, and MHC Acquisition Corporation, now known as
Meridian Healthcare, Inc., a Pennsylvania corporation.
+10.20(2) Option Agreement, dated November 30, 1993, by and among the
Sellers, as identified therein, Heritage Associates Limited
Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.21(2) Lease Agreement, dated as of November 30, 1993, by and between
Multi-Medical Meridian Limited Partnership, a Maryland limited
partnership, and MHC Acquisition Corporation, now known as
Meridian Healthcare, Inc., a Pennsylvania corporation
+10.22(2) Option Agreement, dated November 30, 1993, by and among the
Sellers, as identified therein, Multi-Medical Meridian Limited
Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.23(2) Lease Agreement, dated as of November 30, 1993, by and between
Severna Associates Limited Partnership, a Maryland limited
partnership, and MHC Acquisition Corporation, now known as
Meridian Healthcare, Inc., a Pennsylvania corporation.
+10.24(2) Option Agreement, dated November 30, 1993, by and among the
Sellers, as identified therein, Severna Associates Limited
Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.25(2) Lease Agreement, dated as of November 30, 1993, by and between
Westfield Meridian Limited Partnership, a Maryland limited
partnership, and MHC Acquisition Corporation, now known as
Meridian Healthcare, Inc., a Pennsylvania corporation.
67
<PAGE>
+10.26(2) Option Agreement, dated November 30, 1993, by and among the
Sellers, as identified therein, Westfield Meridian Limited
Partnership, a Maryland limited partnership, and MHC
Acquisition Corporation, now known as Meridian Healthcare,
Inc., a Pennsylvania corporation.
+10.27(9) Management Agreement, dated June 15, 1987, between Brendenwood
MRC Limited Partnership and Meridian Health, Inc. (f/k/a
Meridian, Inc.).
+10.28(9) Lease dated January 5, 1989, as amended, by and between Towson
Building Associates Limited Partnership and Meridian
Healthcare, Inc.
+10.29(9) Sublease dated November 30, 1993, by and between Meridian
Healthcare, Inc. and Fairmount Associates, Inc.
+10.30(12)Agreement to Purchase Partnership Interests, made as of March 1
1996, by and among Meridian Health, Inc., Fairmont Associates,
Inc. and MHC Holding Company
10.31(12) Purchase and Sale Agreement, dated January 16, 1996, by and
among Genesis Health Ventures of Indiana, Inc. and Hallmark
Healthcare Limited Partnership, as seller, and Hunter
Acquisitions, L.L.C., as purchaser.
10.32(17) Guaranty and Agreement of Suretyship Regarding Obligations of
Lessee and Affiliates from Genesis Health Ventures, Inc. and
its Material Subsidiaries, dated as of October 7, 1996
10.33(17) Guaranty and Agreement of Suretyship from Genesis Health
Ventures, Inc. and its Material Subsidiaries, dated as of
October 7, 1996.
10.34(17) Amended and Restated Lease and Agreement, dated as of October
7, 1996, between Mellon Financial Services Corporation #4, as
Lessor, and Genesis Eldercare Properties, Inc., as Lessee.
10.35(17) Amended and Restated Participation Agreement, dated as of
October 7, 1996, among Genesis Eldercare Properties, Inc., as
Lessee, Mellon Financial Services Corporation #4, as Lessor,
Persons Named on Schedule I, as Lenders, and Mellon Bank, N.A.
not in its individual capacity except as expressly stated
therein, but solely as Agent
10.36(17) Management and Affiliation Agreement, dated as of August 31,
1996, by and between Genesis ElderCare Network Services, Inc.,
the Company and AGE Institute of Florida, Inc.
10.37(17) Acquisition Loan and Security Agreement, dated as of August 31,
1996, between Genesis Health Ventures, Inc. and AGE Institute
of Florida, Inc.
10.38(17) Second Amended and Restated Credit Agreement dated as of
October 7, 1996 by and among Genesis Health Ventures, Inc. and
certain of its subsidiaries, as Borrowers of the institutions
identified herein as Lenders, Mellon Bank, N.A. as Issuer of
Letters of Credit, Mellon Bank, N.A. as Administrative Agent
and Co-Syndication Agent, Citibank, N.A. as Co-Syndication
Agent and other co-agents specified therein.
10.39(10) Amended and Restated Lease Agreement dated as of October 7,
1996 between Mellon Financial Services Corporation #4, as
Lessor, and Genesis ElderCare Properties, Inc., as lessee.
68
<PAGE>
10.40(10) Second Amendment to Amended and Restated Participation
Agreement dated March 7, 1998 among Genesis ElderCare
Properties, Inc., as lessee, Mellon Financial Services
Corporation #4, as lessor; various financial institutions as
lendors and Mellon Bank N.A., a national banking association
as Agent for Lessor and the Lendors.
10.41(10) Amendment No. 2 to Second Amended and Restated Credit
Agreement, dated as of March 7, 1997 by and among Genesis
Health Ventures, Inc. and certain subsidiaries as Borrowers
and Mellon Bank N.A. Issuer of Letters of Credit, Mellon Bank
N.A. as Administrator Agent and Co-Syndication Agent,
Citibank, N.A. as Co-Syndication Agent, and other Co-Agents.
10.42(19) Third Amended and Restated Credit Agreement dated October 9,
1997 to Genesis Health Ventures, Inc. from Mellon Bank, N.A.,
Citicorp USA, Inc., First Union National Bank and NationsBank,
N.A.
10.43(19) Credit Agreement dated October 14, 1997 to The Multicare
Companies, Inc. from Mellon Bank, N.A., Citicorp USA, Inc.,
First Union National Bank and NationsBank, N.A.
+10.44(20) Management Agreement dated October 9, 1997 among The Multicare
Companies, Inc., Genesis Health Ventures, Inc. and Genesis
ElderCare Network Services, Inc.
10.45(19) Stockholders' Agreement dated October 9, 1997 among Genesis
ElderCare Corp., The Cypress Group L.L.C., TPG Partners II,
L.P., Nazem, Inc. and Genesis Health Ventures, Inc.
10.46(19) Put/Call Agreement dated October 9, 1997 among The Cypress
Group, L.L.C., TPG Partners, II, L.P., Nazem, Inc. and Genesis
Health Ventures, Inc.
10.47(19) Letter Agreement dated June 16, 1997 between Genesis Health
Ventures, Inc. and Sterns Associates.
10.48(23) Assignment and Assumption Agreement among Genesis Health
Ventures, Inc., Capital Corp. and AGE Institute of Florida.
10.49(23) Amended and Restated Promissory Note among Genesis Health
Ventures, Inc. and, ET Capital Corp. and AGE Institute of
Florida.
10.50(27) Master Agreement for Infusion Therapy Products and Services,
dated June 1, 1991.
10.51(26) Amendment to the Master Agreement for Infusion Therapy
Products and Services, as amended on September 19, 1997 and
April 26, 1998.
10.52(27) Master Pharmacy Consulting Agreement, dated June 1, 1991 and
amended on September 19, 1997 and April 26, 1998
+10.53(26) Amendment to the Master Pharmacy Consulting Agreement, dated
May 31, 1991 amended on September 19, 1997 and April 26, 1998.
10.54(27) Amendment to the Master Pharmacy Services Consulting
Agreement, as amended on September 19, 1997 and April 26,
1998.
10.55(27) Master Agreement for Pharmacy Services, dated June 1, 1991 and
amended on September 19, 1997 and April 26, 1998.
69
<PAGE>
10.56(26) Amendments to the Master Agreement for Pharmacy Services, as
amended on September 19, 1997 and April 26, 1998.
+10.57 Employment Agreement between the Company and Michael R. Walker
dated August 12, 1998.
+10.58 Employment Agreement between the Company and George V. Hager
dated August 12, 1998.
+10.59 Employment Agreement between the Company and Richard R. Howard
dated August 12, 1998.
+10.60 Employment Agreement between the Company and David C. Barr
dated August 12, 1998.
+10.61 Employment Agreement between the Company and Michael G.
Bronfein dated November 11, 1998.
+10.62 Employment Agreement between the Company and Maryann Timon
dated November 11, 1998.
+10.63 Employment Agreement between the Company and Marc. D. Rubinger
dated November 11, 1998.
+10.64 1998 Non-Qualified Employee Stock Option Plan.
21 Subsidiaries of the Company
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
- -------------------------
+ Management contract or compensatory plan or arrangement
(1) Incorporated by reference to the Company's Form 8-K dated September 19,
1993.
(2) Incorporated by reference to the Company's Form 8-K dated November 30,
1993.
(3) Incorporated by reference to the Company's Form 8-K dated August 18, 1995.
(4) Incorporated by reference to the Company's Form 8-K dated November 30,
1995.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-40007).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-51670).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(11) Incorporated by reference to the Company's Form 8-A dated May 11, 1995.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
(13) Incorporated by reference to Form 8-K, as amended, dated May 3, 1996.
(14) Incorporated by reference to Form S-3, dated June 20, 1995 (File No.
33-9350).
(15) Incorporated by reference to Form 8-K, as amended, dated July 11, 1996.
(16) Incorporated by reference to Form S-4, dated October 31, 1996 (File
No.333-15267).
70
<PAGE>
(17) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996.
(18) Incorporated by reference to the Tender Offer Statement on Schedule 14D-1
filed by Genesis ElderCare Corp. and Genesis ElderCare Acquisition Corp. on
June 20, 1997.
(19) Incorporated by reference to Amendment No. 7 to the Tender Offer Statement
on Schedule 14D-1 filed by Genesis ElderCare Corp. and Genesis ElderCare
Acquisition Corp. on June 20, 1997.
(20) Incorporated by reference to Genesis Health Ventures, Inc.'s Current Report
on Form 8-K dated October 10, 1997.
(21) Incorporated by reference to Form S-4, dated June 30, 1998 (File No.
333-58221)
(22) Incorporated by reference to Form S-8, dated May 19, 1998 (File No.
333-53043)
(23) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997
(24) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(25) Incorporated by reference to Schedule 13D dated May 6, 1998.
(26) Incorporated by reference to the Vitalink Pharmacy Services, Inc. Form 10-K
dated August 31, 1998 (File No. 001-12729)
(27) Incorporated by reference to the Vitalink Pharmacy Services, Inc. Form
S-1/A, dated February 29, 1992 (File No. 33-43261)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K and Form 8-K/A dated August
28, 1998, reporting the consummation of an Agreement and Plan of Merger
(the "Merger Agreement") with Vitalink Pharmacy Services, Inc.
("Vitalink"), the reports contain certain financial statements regarding
Vitalink and its subsidiaries and pro forma financial information regarding
the combined entities.
71
<PAGE>
Genesis Health Ventures, Inc. and Subsidiaries
Independent Auditors' Report
The Board of Directors and Shareholders
Genesis Health Ventures, Inc.
Under date of December 15, 1998, we reported on the consolidated balance sheets
of Genesis Health Ventures, Inc. and subsidiaries as of September 30, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 1998, as contained in the Genesis Health Ventures, Inc. annual
report on Form 10-K for the year 1998. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule in the Form 10-K. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion such schedule when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
December 15, 1998
72
<PAGE>
Schedule II
Genesis Health Ventures, Inc.
Valuation and Qualifying Accounts
Years Ended September 30, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Charged to
Balance at Other Balance at
Beginning Charged to Accounts Deductions End of
Description of Period Operations (1) (2) Period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1998
Allowance for Doubtful Accounts $39,418 18,016 36,497 20,212 $73,719
Year Ended September 30, 1997
Allowance for Doubtful Accounts $11,131 12,615 27,563 11,891 $39,418
Year Ended September 30, 1996
Allowance for Doubtful Accounts $ 6,179 4,382 4,748 4,178 $11,131
</TABLE>
(1) Represents amounts related to acquisitions
(2) Represents amounts written off as uncollectible
73
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Amendment No 1 to its
Report to be signed on its behalf on December 23, 1998 by the undersigned duly
authorized.
Genesis Health Ventures, Inc.
By: /s/ George V. Hager, Jr.
----------------------------
George V. Hager, Jr.,
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities indicated on December 23, 1998.
Signature Capacity
/s/ Michael R. Walker
- -------------------------
Michael R. Walker Chairman and Chief Executive Officer
/s/ Richard R. Howard
- -------------------------
Richard R. Howard Vice Chairman and Director
Jack R. Anderson
- -------------------------
Jack R. Anderson Director
Samuel H. Howard
- -------------------------
Samuel H. Howard Director
/s/ Roger C. Lipitz
- -------------------------
Roger C. Lipitz Director
/s/ Stephen E. Luongo
- -------------------------
Stephen E. Luongo Director
/s/ Alan B. Miller
- -------------------------
Alan B. Miller Director
/s/ George V. Hager, Jr.
- -------------------------
George V. Hager, Jr. Chief Financial Officer
(Principal Accounting Officer)
74
<PAGE>
Exhibit A
Series G Cumulative Convertible Preferred Stock
Of
GENESIS HEALTH VENTURES, INC.
RESOLVED, that, pursuant to authority expressly granted to and
vested in the Board of Directors of the Company (the "Board of Directors") by
the provisions of Article 6 of the Amended and Restated Articles of
Incorporation of the Company (the "Articles") and the provisions of Sections
1521 and 1522 of the Pennsylvania Business Corporation Law Of 1988, as amended,
the Board of Directors hereby creates a series of the Company's previously
authorized preferred stock, par value $.01 per share (the "Preferred Stock"),
and determines the designation and number of shares which constitute such series
and the relative rights, preferences and limitations of such series as follows:
SERIES G CUMULATIVE CONVERTIBLE PREFERRED STOCK
SECTION 1. Designation and Amount. The shares of such series
shall be designated as "Series G Cumulative Convertible Preferred Stock" (the
"Series G Preferred Stock") and the number of shares constituting the Series G
Preferred Stock shall be 625,000. Capitalized terms used without previous
definition herein are defined in Section 9 hereof.
SECTION 2. Dividends.
(a) Payment of Dividends. The holders of shares of Series G
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of the assets of the Company legally available therefor,
cumulative preferential cash dividends at the rate per annum of 5.9375% of the
liquidation preference, as may be adjusted in accordance with the provisions
hereof.
<PAGE>
The rate per annum at which dividends on the Series G
Preferred Stock will accrue shall be increased as follows on the indicated date:
Fourth anniversary of the Issue Date...................... 6.1875%
Fifth anniversary of the Issue Date....................... 6.6250%
Ninth anniversary of the Issue Date....................... 7.0625%
Eleventh anniversary of the Issue Date.................... 7.5000%
Thirteenth anniversary of the Issue Date.................. 7.9375%
Dividends shall be payable in arrears on each March 31, June
30, September 30 and December 31, commencing on the last day of the first full
calendar quarter after the Issue Date (each such date being hereinafter referred
to as a "Dividend Payment Date"). The first dividend payment shall be for the
period from the date of original issuance of the Series G Preferred Stock (the
"Issue Date") to December 31, 1998 and each dividend payment thereafter shall be
for the period from the most recent Dividend Payment Date on which dividends
have been paid to but excluding the first Dividend Payment Date thereafter. Each
quarterly period beginning on January 1, April 1, July 1 and October 1 in each
year and ending on and including the day next preceding the first day of the
next such quarterly period shall be a "Dividend Period". Dividends (or amounts
equal to accrued and unpaid dividends) payable on Series G Preferred Stock for
any period less than a full quarterly Dividend Period will be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed in any period less than one month. The Board of Directors may fix a
record date for determination of holders of Series G Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no less than 30 and no more than 60 calendar days prior to the
date fixed for the payment thereof.
Dividends on the Series G Preferred Stock will accrue, whether
or not there are funds legally available for the payment of such dividends and
whether or not such dividends are declared, on a daily basis from the previous
Dividend Payment Date. Dividends will cease to accrue in respect of Series G
Preferred Stock on the date of the conversion thereof.
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If, for four consecutive Dividend Periods, dividends are not
declared and paid or funds are not legally available for the payment of
dividends, dividends will accumulate as of the Dividend Payment Dates, but such
accumulated unpaid dividends shall not bear interest. However, if, after such
four consecutive Dividend Periods, dividends are not declared and paid or funds
continue not to be legally available for the payment of dividends, dividends
that accrue thereafter shall be payable in additional shares of Series G
Preferred Stock (the "Dividend Shares") until such time as all accrued and
unpaid dividends are paid in full in cash. To the extent dividends are payable
in whole or in part in Dividend Shares, such Dividend Shares shall be valued at
$500.00 per share with a liquidation value of $500.00 per share and shall have
all rights and preferences of the Series G Preferred Stock hereunder, including
dividends payable at the rates specified herein. Dividends on the Dividend
Shares shall accrue from the date such Dividend Shares are issued.
Dividends paid on the shares of Series G Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
(b) Payment of Dividends on Junior Stock. As long as any
Series G Preferred Stock is outstanding, no dividends or other distributions for
any Dividend Period (other than dividends payable in shares of, or warrants,
rights or options exerciseable for or convertible into shares of, common stock,
par value $.02 per share, of the Company (the "Common Stock") or any other
capital stock of the Company ranking junior to the Series G Preferred Stock as
to the payment of dividends and the distribution of assets upon liquidation
("Junior Stock"), and cash in lieu of fractional shares of such Junior Stock in
connection with any such dividends) will be paid on any Junior Stock unless: (i)
full dividends on all outstanding shares of Preferred Stock that by its terms
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ranks pari passu with the Series G Preferred Stock with respect to the payment
of dividends ("Parity Preferred Stock"), and the Series G Preferred Stock have
been paid, or declared and set aside for payment, for all Dividend Periods
terminating on or prior to the payment date of such Junior Stock dividend or
distribution and for the current Dividend Period, to the extent such Parity
Preferred Stock dividends are cumulative; (ii) the Company has paid or set aside
all amounts, if any, then or theretofore required to be paid or set aside for
all purchase, retirement and sinking funds, if any, for any outstanding shares
of Parity Preferred Stock; and (iii) the Company is not in default on any of its
obligations to redeem any outstanding shares of Parity Preferred Stock or Series
G Preferred Stock.
In addition, as long as any Series G Preferred Stock is
outstanding, no shares of any Junior Stock may be purchased, redeemed or
otherwise acquired by the Company or any of its subsidiaries (except in
connection with a reclassification or exchange of any Junior Stock through the
issuance of other Junior Stock (and cash in lieu of fractional shares of such
Junior Stock in connection therewith) or the purchase, redemption or other
acquisition of any Junior Stock with any Junior Stock (and cash in lieu of
fractional shares of such Junior Stock in connection therewith) or in accordance
with the Put/Call Agreement, or outstanding call options) nor may any funds be
set aside or made available for any sinking fund for the purchase or redemption
of any Junior Stock unless: (i) full dividends on all outstanding shares of
Parity Preferred Stock and Series G Preferred Stock have been paid, or declared
and set aside for payment, for all dividends periods terminating on or prior to
the date of such purchase, redemption or acquisition and for the current
Dividend Period, to the extent such Parity Preferred Stock dividends are
cumulative; (ii) the Company has paid or set aside all amounts, if any, then or
theretofore required to be paid or set aside for all purchase, retirement and
sinking funds, if any, for any outstanding shares of Parity Preferred Stock; and
(iii) the Company is not in default on any of its obligations to redeem any
outstanding shares of Parity Preferred Stock or Series G Preferred Stock.
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Subject to the provisions described above, such dividends or
other distributions (payable in cash, property or Junior Stock) as may be
determined from time to time by the Board of Directors may be declared and paid
on the shares of any Junior Stock and from time to time Junior Stock may be
purchased, redeemed or otherwise acquired by the Company or any of its
subsidiaries. In the event of the declaration and payment of any such dividends
or other distributions, the holders of such Junior Stock will be entitled, to
the exclusion of holders of any outstanding Parity Preferred Stock or Series G
Preferred Stock, to share therein according to their respective interests.
(c) Payment of Dividends on Parity Preferred Stock. As long as
any Series G Preferred Stock is outstanding, dividends or other distributions
for any Dividend Period may not be paid on any outstanding shares of Parity
Preferred Stock (other than dividends or other distributions payable in Junior
Stock and cash in lieu of fractional shares of such Junior Stock in connection
therewith), unless either: (i) (A) full dividends on all outstanding shares of
Parity Preferred Stock and Series G Preferred Stock have been paid, or declared
and set aside for payment, for all Dividend Periods terminating on or prior to
the payment date of such Parity Preferred Stock dividend or distribution and for
the current Dividend Period, to the extent such Parity Preferred Stock dividends
are cumulative; (B) the Company has paid or set aside all amounts, if any, then
or theretofore required to be paid or set aside for all purchase, retirement and
sinking funds, if any, for any outstanding shares of Parity Preferred Stock; and
(C) the Company is not in default on any of its obligations to redeem any
outstanding shares of Parity Preferred Stock or Series G Preferred Stock; or
(ii) any such dividends are declared and paid pro rata so that the amounts of
any dividends declared and paid per share on outstanding Series G Preferred
Stock and each other share of such Parity Preferred Stock will in all cases bear
to each other the same ratio that accrued and unpaid dividends (including any
accumulation with respect to unpaid dividends for prior Dividend Periods, if
such dividends are cumulative) per share of outstanding Series G Preferred Stock
and such other outstanding shares of Parity Preferred Stock bear to each other.
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In addition, as long as any Series G Preferred Stock is
outstanding, the Company may not purchase, redeem or otherwise acquire any
Parity Preferred Stock (except with any Junior Stock and cash in lieu of
fractional shares of such Junior stock in connection therewith) unless: (i) full
dividends on all outstanding shares of Parity Preferred Stock and Series G
Preferred Stock have been paid, or declared and set aside for payment, for all
Dividend Periods terminating on or prior to the payment date of such Parity
Preferred Stock purchase, redemption or other acquisition and for the current
Dividend Period, to the extent such Parity Preferred Stock dividends are
cumulative; (ii) the Company has paid or set aside all amounts, if any, then or
theretofore required to be paid or set aside for all purchase, retirement and
sinking funds, if any, for any outstanding shares of Parity Preferred Stock; and
(iii) the Company is not in default on any of its obligations to redeem any
outstanding shares of Parity Preferred Stock or Series G Preferred Stock (unless
all Parity Preferred Stock as to which such a default exists is purchased or
redeemed on a pro rata basis).
(d) Any dividend payment made on the Series G Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to the Series G Preferred Stock.
SECTION 3. Voting Rights. The holders of shares of Series G
Preferred Stock shall have the following voting rights:
(a) The holders of the Series G Preferred Stock (in addition
to their rights set forth in this Section 3 and otherwise provided by law) shall
be entitled to such number of votes for each share held as equals the number of
shares of Common Stock into which such shares are convertible on the record date
set for determining who is entitled to vote a particular matter and shall vote
together with the holders of Common Stock (and any other class or series of
Preferred Stock, if any, similarly entitled to vote (such Preferred Stock,
together with the Common Stock, the "Voting Securities") as a single class, on
all matters to be voted on by holders of Common Stock of the Company. In
addition to such voting rights, holders of the Series G Preferred Stock shall be
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entitled to vote as a separate class on matters as to which the Pennsylvania Law
requires a separate class vote of the Series G Preferred Stock, and shall have
such other voting rights as are set forth in this Section 3.
(b) Whenever dividends payable on shares of Series G Preferred
Stock as provided in Section 2 are in arrears and unpaid for four consecutive
Dividend Periods, thereafter and until all accrued and unpaid dividends, whether
or not declared, on the outstanding shares of Series G Preferred Stock shall
have been paid in full in cash or declared and cash set apart for the payment
thereof, the number of directors of the Company shall be increased by two and
the holders of the Series G Preferred Stock shall have the right, voting
separately as a class, by a vote of holders of a majority of the number of
outstanding shares of Series G Preferred Stock, to elect two directors of the
Company, and the remaining directors of the Company shall be elected by the
classes of stock entitled to vote therefor, voting together, including the
Series G Preferred Stock, at each meeting of the shareholders held for the
purpose of electing directors, all in accordance with the terms and procedures
set forth in the Company's Articles and By-Laws. The Company agrees to call a
meeting of holders of the Series G Preferred Stock in order that the Series G
Preferred Stock may be represented on the Board of Directors in accordance
hereof. At such time as the accrued and unpaid dividends shall have been paid in
full in cash or declared and cash set apart for the payment thereof, the right
of the holders to vote for directors as provided herein shall terminate and the
term of office of any director(s) then in office who were elected pursuant to
this Section 3(b) shall immediately terminate.
(c) So long as any shares of Series G Preferred Stock are
outstanding, subject to the applicable provisions of the Pennsylvania Law, the
Company shall not, without consent of the holders of at least two-thirds of the
number of shares of Series G Preferred Stock at the time outstanding, given in
person or by proxy, either in writing or by vote at a special meeting called for
the purpose, (i) increase the number of shares of authorized Series G Preferred
Stock or issue any additional shares of Series G Preferred Stock other than
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Dividend Shares; (ii) amend or modify the powers, preferences or rights of the
Series G Preferred Stock or amend, alter or repeal any of the provisions of the
Company's Articles or By-Laws (including by merger or similar transaction) so as
to eliminate the Series G Preferred Stock or otherwise affect adversely the
powers, preferences or rights of the holders of Series G Preferred Stock;
provided, however, that the Company may authorize and issue classes or series of
stock ranking senior to, or on a parity with the Series G Preferred Stock either
in the payment of dividends or in the distribution of assets upon any
liquidation, dissolution or winding-up of the affairs of the Company, or that
the Company may be required to redeem or repurchase before all of the Series G
Preferred Stock has been redeemed without the consent of the holders of the
Series G Preferred Stock; or (iii) enter into any plan of complete liquidation
or dissolution or otherwise effect the voluntary liquidation, dissolution or
winding-up of the Company unless, as a result of such liquidation, dissolution
or winding-up, the liquidation preference on the Series G Preferred Stock is
satisfied in full pursuant to Section 7 hereof.
SECTION 4. Conversion at the Option of the Company.
(a) From and after April 26, 2001, the Company at its option
may convert the Series G Preferred Stock in whole at any time at a conversion
price equal to 100% of the Liquidation Amount, plus accrued and unpaid dividends
to the date of conversion, if the Current Market Price on the date of such
notice was in excess of 120% of the Conversion Price (as defined herein) on the
date of such notice.
(b) From and after April 26, 2002, the Company at its option
may convert the Series G Preferred Stock in whole at any time at the conversion
price set forth below, stated as a percentage of the Liquidation Amount, in each
case plus accrued and unpaid dividends to the date of conversion, if converted
during the twelve-month period beginning April 26:
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Year Price
---- -----
2002................................................. 104.50%
2003................................................. 103.75%
2004................................................. 103.00%
2005................................................. 102.25%
2006................................................. 101.50%
2007................................................. 100.75%
2008 and thereafter.................................. 100.00%
(c) The conversion prices for Series G Preferred Stock set
forth in (a) and (b) above are payable by the Company solely in Common Stock.
The Company shall on the date of conversion deliver to each holder of Series G
Preferred Stock for each share of Series G Preferred Stock a number of shares of
validly issued, fully paid and nonassessable Common Stock with an aggregate
Market Price on such date equal to the applicable conversion price.
(d) At least 30 days and not more than 60 days prior to the
date of conversion, written notice (the "Conversion Notice") shall be given by
first-class mail, postage prepaid, to each holder of the Series G Preferred
Stock at such holder's address as it appears on the stock books of the Company.
The Conversion Notice shall state:
(A) Whether the conversion is pursuant to paragraph (a) or (b)
of this Section 4;
(B) the price at which the shares of Series G Preferred Stock
shall be converted;
(C) the date of conversion; and
(D) that dividends on the shares of the Series G Preferred
Stock to be converted shall cease to accumulate on such date of conversion
unless the Company defaults in the payment of the applicable conversion price.
Each holder of Series G Preferred Stock shall surrender the
certificate or certificates representing such shares of Series G Preferred Stock
to the Company, duly endorsed (or otherwise in proper form for transfer, as
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determined by the Company), in the manner and at the place designated in the
Conversion Notice, and on the date of conversion the conversion price for such
shares shall be payable to the holder thereof, and each surrendered certificate
shall be cancelled and retired.
SECTION 5. Conversion at the Option of the Holders.
(a) Procedure. At the option of the holders, each share of
Series G Preferred Stock shall be convertible at any time into Common Stock at a
conversion price of $37.20 per share of the underlying Common Stock (equivalent
to a conversion rate of 13.441 shares of Common Stock for each share of Series G
Preferred Stock), such initial conversion price being subject to adjustment as
set forth below (the "Conversion Price").
(i) Conversion of Series G Preferred Stock may be effected by
delivering certificates evidencing such shares, together with written notice of
conversion and a proper assignment of such certificates to the Company or in
blank, to the office or agency to be maintained by the Company for that purpose
(and, if applicable, cash payment of an amount equal to the dividend payable on
such shares), and otherwise in accordance with conversion procedures established
by the Company. Each optional conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the foregoing
requirements shall have been satisfied and dividends will cease to accrue in
respect of Series G Preferred Stock at such time. The conversion shall be at the
Conversion Price in effect at such time and on such date.
(ii) On and after the date of conversion, unless the Company
fails to issue certificates evidencing the Common Stock, dividends on the Series
G Preferred Stock called for conversion shall cease to accumulate on the date of
conversion, and all rights of the holders of converted shares shall terminate
with respect thereto on the date of conversion, other than the right to receive
the Common Stock into which each share of Series G Preferred Stock shall be
converted.
(b) Receipt of Dividends. Holders of Series G Preferred Stock
at the close of business on a record date for any payment of declared dividends
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shall be entitled to receive the full dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the conversion of such
shares following such record date and prior to the corresponding Dividend
Payment Date. However, shares of Series G Preferred Stock surrendered for
conversion after the close of business on a record date for any payment of
declared dividends and before the opening of business on the next succeeding
Dividend Payment Date must be accompanied by payment to the Company in cash of
an amount equal to the dividend declared on such shares of Series G Preferred
Stock to be converted and to be payable on such Dividend Payment Date unless a
Conversion Notice from the Company shall have been delivered to the Holders and
the date of conversion is on or before the next succeeding Dividend Payment
Date. Holders thereof shall continue to be entitled to receive from the Company
any accrued but unpaid dividends thereon. Such accrued but unpaid dividends may
be declared and paid at any time, without reference to any regular Dividend
Payment Date. Except as provided above, upon any conversion at the option of the
holder of Series G Preferred Stock, the Company shall make no payment or
allowance for unpaid dividends for the Dividend Period during which such
conversion occurs, whether or not in arrears, on such converted Series G
Preferred Stock or for previously declared dividends or distributions on the
shares of Common Stock issued upon such conversion.
(c) Adjustment for Stock Transactions. In case the Company
shall (i) subdivide its outstanding shares of Common Stock into a greater number
of shares, (ii) combine its outstanding shares of Common Stock into a smaller
number of shares, or (iii) issue by reclassification of its shares of Common
Stock any shares of its capital stock, each such transaction being called a
"Stock Transaction"), then and in each such case, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of a share of
Series G Preferred Stock surrendered for conversion after the record date fixing
shareholders to be affected by such Stock Transaction shall be entitled to
receive upon conversion the number of such shares of Common Stock and/or other
capital stock which such holder would have been entitled to receive after the
happening of such event had such share of Series G Preferred Stock been
converted immediately prior to such record date.
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(d) Adjustment for Dividends. In the event the Company shall
at any time or from time to time while any shares of Series G Preferred Stock
are outstanding declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Company or any
of its subsidiaries by way of dividend or distribution or evidences of
indebtedness of the Company or any other person) on its Common Stock, other than
(A) regular dividends payable in cash or (B) any dividend or distribution on the
Company's Common Stock if in conjunction therewith the Company declares and pays
or makes a dividend or distribution on each share of Series G Preferred Stock
which is the same as the dividend or distribution that would have been made or
paid with respect to such share of Series G Preferred Stock had such share been
converted into shares of Common Stock immediately prior to the record date for
any such dividend or distribution on the Company's Common Stock, then, and in
each such case, an appropriate adjustment to the Conversion Price shall be made
so that the holder of each share of Series G Preferred Stock shall be entitled
to receive, upon the conversion thereof, the number of shares of Common Stock
determined by multiplying (1) the number of shares of Common Stock into which
such share was convertible on the day immediately prior to the record date fixed
for the determination of shareholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the Current
Market Price per share of Common Stock as of such record date, and the
denominator of which shall be such Current Market Price per share of Common
Stock less the Fair Market Value per share of Common Stock of such dividend or
distribution (as determined in good faith by the Board of Directors, a certified
resolution with respect to which shall be mailed to each holder of shares of
Series G Preferred Stock); provided, however, that in the event of a
distribution of shares of capital stock of a subsidiary of the Company (a
"Spin-Off") made to holders of shares of Common Stock, the numerator of such
fraction shall be the sum of the Current Market Price per share of Common Stock
as of the 30th trading day after the effective date of such Spin-Off and the
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Current Market Price of the number of shares (or the fraction of a share) of
capital stock of the subsidiary which is distributed in such Spin-Off in respect
of one share of Common Stock as of such 30th trading day and the denominator of
which shall be the Current Market Price per share of Common Stock as of such
30th trading day. An adjustment made pursuant to this paragraph (d) shall be
made upon the opening of business on the next business day following the date on
which any such dividend or distribution is made and shall be effective
retroactively to the day immediately after the close of business on the record
date fixed for the determination of shareholders entitled to receive such
dividend or distribution; provided, however, if the proviso to the preceding
sentence applies, then such adjustment shall be made and be effective as of such
30th trading day after the effective date of such Spin-Off.
(e) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this
paragraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment and provided, further, that any
adjustment shall be required and made in accordance with the provisions of this
Section (other than this paragraph (e)) not later than such time as may be
required in order to preserve the tax free nature of the distribution to the
holders of shares of Common Stock. All calculations under this Section 5 shall
be made to the nearest one-hundredth of a share.
If any action or transaction would require adjustment to the
Conversion Price pursuant to more than one paragraph of this Section 5, only one
adjustment shall be made and such adjustment shall be the amount of the
adjustment that has the highest absolute value.
(f) Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon the
conversion of any share of Series G Preferred Stock. If the conversion thereof
results in a fraction, an amount equal to such fraction multiplied by the
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Current Market Price per share of Common Stock as of the conversion date shall
be paid to such holder in cash by the Company. If more than one share shall be
surrendered for conversion at one time by or for the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of Series G Preferred Stock so surrendered.
(g) Capital Reorganizations; Change in Control. In the event
of any capital reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph (c) of this
Section 5), or in case of any merger, consolidation or other corporate
combination of the Company with or into another corporation, or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series G Preferred Stock shall be
exchanged for a new series of preferred stock of the Surviving Person, or in the
case of a Surviving Person other than a corporation, comparable securities of
such Surviving Person, in either case having economic terms as nearly equivalent
as possible to, and with the same voting and other rights as, the Series G
Preferred Stock; except that any holder of Series G Preferred Stock shall be
entitled to receive, upon conversion subsequent to the consummation of such
Transaction, the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of such Transaction
by a holder of that number of shares of Common Stock into which one share of
Series G Preferred Stock was convertible immediately prior to such Transaction.
Notwithstanding the foregoing, upon a Change in Control (as defined below) at
the option of the holder of any shares of Series G Preferred Stock the holder
thereof shall be entitled to receive, upon presentation of the certificates
therefor to the Surviving Person subsequent to the consummation of such
Transaction, cash equal to the Liquidation Amount as of the consummation of such
transaction. If necessary, appropriate adjustment (as determined by the Board of
Directors in good faith) shall be made in the application of the provisions set
forth in this Section 5 with respect to the rights and interests thereafter of
the holders of shares of Series G Preferred Stock to the end that the provisions
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set forth herein for the protection of the conversion rights of the Series G
Preferred stock shall thereafter be applicable, as nearly as reasonably may be,
to any such other shares of stock and other securities and property deliverable
upon conversion of the shares of Series G Preferred Stock remaining outstanding
(with such adjustments in the Conversion Price and number of shares issuable
upon conversion and such other adjustments in the provisions hereof as the Board
of Directors in good faith shall determine to be appropriate). In case
securities or property other than Common stock shall be issuable or deliverable
upon conversion as aforesaid, then all references in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
Notwithstanding anything contained herein to the contrary, the
Company will not effect any Transaction unless, prior to the consummation
thereof, (a) proper provision is made to ensure that the holders of shares of
Series G Preferred Stock will be entitled to receive the benefits afforded by
this paragraph (i) and (b) if, following the Transaction, one or more entities
other than the Company shall be required to deliver securities or other property
upon the conversion of the Series G Preferred Stock, such entity or entities
shall assume, by written instrument delivered to each holder of shares of Series
G Preferred Stock the obligation to deliver to such holder the securities and
property to which, in accordance with the foregoing provisions, such holder is
entitled.
"Change in Control" means (A) when the shareholders of Gemini
approve an agreement or plan (i) to merge or consolidate Gemini with or into
another company (other than a merger or consolidation which would result in the
Voting Securities outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting power of the voting
securities of Gemini or such surviving entity outstanding immediately after such
merger or consolidation), or (ii) to sell, or otherwise dispose of, all or
substantially all of Gemini's property and assets, or (B) when Gemini is the
subject of a transaction pursuant to Rule 13e-3 under the Exchange Act.
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(h) Notice of Certain Events. In case at any time or from time
to time, the Company shall pay any dividend or make any other distribution to
the holders of its Common Stock, or shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or any
other right, or there shall be any capital reorganization or reclassification of
the Common Stock of the Company or merger, consolidation or other corporate
combination of the Company with or into another corporation, or any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company, then, in any one or more
of said cases the Company shall give written notice at the same time as, or as
soon as practicable after, such event is first communicated (including by
announcement of a record date in accordance with the rules of any stock exchange
on which the Common Stock is listed or admitted to trading) to holders of Common
Stock, but in any event within 30 days of occurrence of such event (the time of
mailing of such notice shall be deemed to be the time of delivery thereof) to
the registered holders of the Series G Preferred Stock at the addresses of each
as shown on the books of the Company maintained by the transfer agent thereof of
the date on which (i) the books of the Company shall close or a record shall be
taken for such stock dividend, distribution, subscription rights or Repurchase
or (ii) such reorganization, reclassification, merger, consolidation, corporate
combination, sale or conveyance, dissolution, liquidation or winding-up shall
take place, as the case may be. Such notice shall also specify the date as of
which the holders of the Common Stock of record shall participate in said
dividend, distribution, subscription rights or Repurchase or shall be entitled
to exchange their Common Stock for securities or other property deliverable upon
such registration, reclassification, merger, consolidation, corporate
combination, sale or conveyance or participate in such dissolution, liquidation
or winding-up, as the case may be, as well as the Conversion Price and the
number of shares into which each share of Series G Preferred Stock may be
converted at such time, failure to give such notice shall not invalidate any
action so taken.
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(i) Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series G Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series G Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series G
Preferred Stock, at the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
SECTION 6. Liquidation Preference. (a) The Series G Preferred
Stock will rank on a parity as to preference on distribution of assets upon
liquidation with each other series of Parity Preferred Stock then outstanding,
and with any future Preferred Stock issued by the Company that by its terms
ranks pari passu with the Series G Preferred Stock with respect to distribution
of assets upon liquidation.
(b) The Series G Preferred Stock will be subordinate as to
preference on distribution of assets upon liquidation of dividends to each other
series of existing and future Preferred Stock issued by the Company that by its
terms is senior to the Series G Preferred Stock with respect to distribution of
assets upon liquidation.
(c) In the event of the liquidation, dissolution or winding-up
of the business of the Company, whether voluntary or involuntary, the holders of
Series G Preferred Stock then outstanding, after payment or provision for
payment of the debts and other liabilities of the Company and the payment or
provision for payment of any distribution on any shares of the Company having a
preference and a priority over the Series G Preferred Stock on liquidation, and
before any distribution to holders of any shares of the Company that are junior
and subordinate to the Series G Preferred Stock on liquidation shall be entitled
to be paid out of the assets of the Company available for distribution to its
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stockholders the Liquidation Amount, plus an amount equal to all accrued and
unpaid dividends thereon, and shall, after the holders of Common Stock have
received an amount per share of Common Stock equal to the amount paid per share
of Series G Preferred Stock, be entitled to participate on a pro rata basis with
the holders of Common Stock. In the event the assets of the Company available
for distribution to the holders of the Series G Preferred Stock upon any
dissolution, liquidation or winding-up of the Company shall be insufficient to
pay in full the liquidation payments payable to the holders of outstanding
Series G Preferred Stock and of all other series of Preferred Stock that rank on
a parity with the Series G Preferred Stock in the event of liquidation, the
holders of Series G Preferred Stock and of all other series of such parity
Preferred Stock shall share ratably in such distribution of assets in proportion
to the amount which would be payable on such distribution if the amounts to
which the holders of outstanding Series G Preferred Stock and the holders of
outstanding shares of such Parity Preferred Stock were paid in full. Except as
provided in this Section 6, holders of Series G Preferred Stock shall not be
entitled to any distribution in the event of liquidation, dissolution or
winding-up of the affairs of the Company.
(d) For the purposes of this Section 6, none of the following
shall be deemed to be a voluntary or involuntary liquidation, dissolution or
winding-up of the Company:
(i) the sale, lease, transfer or exchange of all or
substantially all of the assets of the Company; or
(ii) the consolidation or merger of the Company with one or
more other corporations (whether or not the Company is the corporation
surviving such consolidation or merger).
SECTION 7. Non-Transferability. No holder of the Series G
Preferred Stock shall transfer the Series G Preferred Stock without the consent
of the Company until one year after the effective date of the agreement and plan
of merger dated as of April 26, 1998 by and among the Company, Vitalink Pharmacy
Services, Inc. and V Acquisition Corporation; provided however, Manor Care, Inc.
may not transfer any shares of Series G Preferred Stock held, directly or
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indirectly, whether acquired in connection with the consent of the Company or
until the filing by the Company of a registration statement with the Securities
and Exchange Commission covering the sale of Series G Preferred Stock held by
Manor Care, Inc.
SECTION 8. Re-issuance. Series G Preferred Stock that has been
issued and reacquired in any manner, including shares purchased, exchanged or
converted, shall not be reissued as shares of this Series G Cumulative
Convertible Preferred Stock and shall (upon compliance with any applicable
provisions of the laws of the Commonwealth of Pennsylvania) have the status of
authorized and unissued shares of the Preferred Stock undesignated as to series
and may be redesignated and reissued as part of any series of Preferred Stock.
SECTION 9. Definitions.
For the purposes hereof, the following definitions shall
apply:
"Closing Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Company or any other
issuer for a day shall mean the last reported sales price, regular way, or, in
case no sale takes place on such day, the average of the reported closing bid
and asked prices, regular way, in either case as reported on the New York Stock
Exchange -- Composite Transactions Tape or, if such security is not listed or
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which such security is listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on the
NASDAQ National Market System or, if such security is not quoted on such
National Market System, the average of the closing bid and asked prices on each
such day in the over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such security on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for such day as
furnished by any New York Stock Exchange member firm regularly making a market
in such security selected for such purpose by the Board of Directors or a
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committee thereof. If the Common Stock or other class of capital stock or
security in question is not publicly held or so listed or publicly traded,
"Closing Price" shall mean the Fair Market Value thereof.
"Current Market Price" per share of Common Stock on any date
shall be deemed to be the average of the daily Closing Prices per share for the
20 trading days ending on the trading day immediately preceding the date in
question.
"Fair Market Value" of any consideration other than cash or of
any securities shall mean the amount which a willing buyer would pay to a
willing seller in an arm's length transaction as determined by an independent
investment banking or appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board of Directors or a
committee thereof.
"Liquidation Amount" per share shall be $500.00.
"Market Price" per share at any date shall be the Closing
Price on the specified date.
"Surviving Person" shall mean the continuing or surviving
Person of a merger, consolidation or other corporate combination, the Person
receiving a transfer of all or a substantial part of the properties and assets
of the Company, or the Person consolidating with or merging into the Company in
a merger, consolidation or other corporate combination in which the Company is
the continuing or surviving Person, but in connection with which the Series G
Preferred Stock or Common Stock of the Company is exchanged, converted or
reclassified into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
subsidiary of a Qualified Person, the parent entity that is a Qualified Person
shall be the Surviving Person.
"Qualified Person" shall mean any Person that, immediately
after giving effect to the applicable Transaction, (i) is a solvent corporation
or other entity organized under the laws of any state of the United States of
America having its common stock or, in the case of an entity other than a
corporation, equivalent equity securities, listed on the New York Stock Exchange
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or the American Stock Exchange or quoted by the NASDAQ National Market System or
any successor thereto or comparable system and such common stock or equivalent
equity security continues to meet the requirements for such listing or quotation
and (ii) is required to file, and in each of its three fiscal years immediately
preceding the consummation of the applicable Transaction (or, if sooner, since
its inception) has filed, reports with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "Exchange
Act").
"Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
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RIGHTS AGREEMENT
RIGHTS AGREEMENT (the "Agreement"), dated as of April 26,
1998, by and between GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation
("Genesis") and Manor Care Inc., a Delaware corporation ("Manor Care").
W I T N E S S E T H :
WHEREAS, Genesis, The Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Genesis ("Acquisition Corporation"),
and Vitalink Pharmacy Services, Inc., a Delaware corporation ("Vitalink,,), have
entered into an Agreement and Plan of Merger dated April 26, 1998 (the "Merger
Agreement");
WHEREAS, as a result of the Merger (capitalized terms used
without definition herein having the meanings ascribed thereto in the Merger
Agreement), Manor Care will beneficially own shares of preferred stock, par
value $.01 per share, of Genesis (the "Preferred Stock"), which Preferred Stock
is convertible into shares of common stock, par value $.02 per share, of Genesis
(the "Common Stock"); and
WHEREAS, Genesis and Manor Care have agreed that this
Agreement shall become effective at the Effective Time of the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, Genesis and Manor Care hereby agree as follows:
STANDSTILL
Section 1. Manor Care Standstill Obligations.
Prior to the earlier of April 26, 2005 or the occurrence of a
Director Change (as defined below) and subject to the further provisions hereof:
(a) Neither Manor Care nor any Affiliate of Manor Care
including, without limitation, New ManorCare Health Services, Inc.
(collectively, the "Manor Care Group") will, without the prior written consent
<PAGE>
of Genesis, directly or indirectly, acquire any shares of any class of capital
stock of Genesis which is entitled to vote generally in the election of
directors or is convertible or exchangeable for any class of capital stock which
is entitled to vote generally in the election of directors (all such classes of
capital stock of Genesis being referred to herein as "Voting Securities")
(except for the Preferred Stock, the Common Stock or other securities issuable
upon conversion of the Preferred Stock and pursuant to stock splits, stock
dividends or other distributions or offerings made available to holders of
Voting Securities generally); provided, however, that if at any time the Manor
Care Voting Power shall be less than the Maximum Percentage of the Total Voting
Power, then the Manor Care Group may acquire Voting Securities unless the effect
of such acquisition would be to increase the aggregate voting power in the
election of directors of all Voting Securities then owned by all members of the
Manor Care Group (such aggregate voting power of all Voting Securities owned by
all members of the Manor Care Group being referred to herein as the "Manor Care
Voting Power") to greater than 15% (the "Maximum Percentage") of the total
combined voting power in the election of directors of all the Voting Securities
then outstanding (such total combined voting power of all the Voting Securities
outstanding being referred to herein as the "Total Voting Power").
If at any time the Manor Care Voting Power shall be increased
to more than the Maximum Percentage of the Total Voting Power as a result of a
repurchase of Voting Securities by Genesis or any other change in Genesis's
capitalization, no member of the Manor Care Group shall be required to dispose
any Voting Securities.
As used in this Agreement, the following terms shall have the
following meanings:
The term "affiliate" shall have the meaning set forth in Rule
12b-2 under the Exchange Act.
"Continuing Director" shall mean any member of the Board of
Directors of Genesis, while such person is a member of the Board of Directors
who either (i) was a member of the Board of Directors on the date hereof, (ii)
subsequently becomes a member of the Board of Directors, if such person was
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recommended or elected to succeed the Continuing Directors by a majority of the
Continuing Directors or (iii) was appointed at the direction of Manor Care.
"Director Change" shall mean (i) the Chief Executive Officer
of Genesis on the date hereof is removed from office by the Board of Directors
or the Board of Directors materially alters his authority or responsibilities
such that he does not exercise the authority or have the responsibilities
formerly associated with his position as the Chief Executive Officer, or (ii)
the majority of the Board of Directors does not consist of Continuing Directors.
All references to securities "owned" or "acquired" by a
person shall include all securities owned of record by such person and all
securities over which such person has beneficial ownership within the meaning of
Section 13(d) of the Exchange Act.
The term "person" shall mean any person or group of persons
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder (the "Exchange
Act").
(b) No member of the Manor Care Group shall make any
"solicitation" of "proxies" to vote or become a "participant"
in a "solicitation" (as such terms are defined in Regulation 14A under the
Exchange Act) in opposition to the recommendation of the majority of the
directors of Genesis with respect to any matter.
(c) No member of the Manor Care Group shall join a
partnership, limited partnership, syndicate or other group, or otherwise act in
concert with any other person, for the purpose of acquiring, holding, voting or
disposing of Voting Securities in violation of Section l(a), or otherwise become
a "person" within the meaning of Section 13(d)(3) of the Exchange Act (in each
case other than solely with members of the Manor Care Group), nor shall any
member of the Manor Care Group deposit any Voting Securities in a voting trust
or similar arrangement or subject any Voting Securities to any voting agreement
or pooling arrangement other than in accordance with Section 4(b).
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(d) No member of the Manor Care Group shall seek to call, or
request the call of, a special meeting of the shareholders of Genesis or seek to
make, or make, a shareholder proposal at any meeting of the shareholders of
Genesis.
(e) No member of the Manor Care Group shall commence or
announce any intention to commence any tender offer for any shares of Stock, or
take any action that would require the Manor Care Group to file with or send to
the Securities and Exchange Commission (the "SEC") an amendment to Item 4 or
Item 6 of its Schedule 13D under the Exchange Act with respect to the Voting
Securities.
(f) No member of the Manor Care Group shall, directly or
indirectly, assist, encourage or induce any person to bid for or acquire
outstanding Voting Securities or propose a tender offer, exchange offer or
change of control of Genesis; provided, however, that the mere sale of Voting
Securities by any member of the Manor Care Group and any action taken by the
Manor Care Director or Manor Care Observer in connection with his role as a
board member or observer shall not constitute assisting, encouraging or inducing
within the meaning of this Section l(f).
(g) No member of the Manor Care Group shall otherwise act
alone or in concert with others to seek control or influence the management,
Board of Directors or policies of Genesis other than pursuant to this Agreement
or any action taken by the Manor Care Director or Manor Care Observer in
connection with its role as a board member or observer.
(h) No member of the Manor Care Group shall arrange, or in
any way participate in, any financing for any transaction referred to in clauses
(a) through (g) above inclusive.
(i) No member of the Manor Care Group shall make public, or
cause or facilitate the public disclosure (including by disclosure to any
journalist or other representative of the media) of, any request, or otherwise
seek (in any fashion that would require public disclosure by Genesis), to obtain
any waiver or amendment of any provision of this Section 1, or to take any
action restricted hereby.
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(j) In the event a tender or exchange offer is made by any
person (other than an affiliate of, or any person acting in concert with, any
member of the Manor Care Group) any member of the Manor Care Group holding
Voting Securities may tender or exchange its Voting Securities according to the
terms of the offer.
(k) If, at any time prior to April 26, 2003, the Manor Care
Group proposes to transfer to a third party Voting Securities having in excess
of 15% of the Total Voting Power, then as a condition to such transfer the
transferee must Agree to be bound by the provisions of this Section 1 with
respect to such Voting Securities. Notwithstanding the foregoing, the Manor Care
Group shall not transfer Voting Securities to any person who owns any Voting
Securities of Genesis, if such transfer will result in such transferee having in
excess of 15% of the Total Voting Power. Any purported transfer in violation of
this section will be void.
Section 2. Genesis Standstill Obligations.
(a) Genesis will not, without the prior written consent of
Manor Care, take or recommend to its shareholders any action during the term of
this Agreement which would impose limitations on the legal rights of the Manor
Care Group as Genesis shareholders other than those imposed pursuant to the
express terms of this Agreement which disproportionately affect the Manor Care
Group compared to holders of Preferred Stock or Common Stock generally.
(b) Prior to the Effective Time, Genesis shall have taken
appropriate action with respect to its stockholders rights plan so as to exempt
(I) the holders of Preferred Stock or (ii) any person that is the direct
assignee of any holder of Preferred Stock to the extent that such assignee (A)
acquires a holder of Preferred Stock over Securities and (B) owns no other
shares of Voting Securities from the restrictions of such stockholders rights
plan with respect to such shares of Preferred Stock and shares of Common Stock
issuable upon conversion thereof and from and after the Effective Time, Genesis
shall take no action which would subject such holders of Preferred Stock to the
restrictions of Genesis's stockholders rights plan or any similar plan adopted
after the Effective Time.
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(c) Genesis will not require any Manor Care Director or Manor
Care Observer to enter into any confidentiality agreement or other arrangement
that would limit the ability of such Manor Care Director or Manor Care Observer
to communicate with Manor Care as contemplated by Section 3(c) hereof.
BOARD REPRESENTATION AND VOTING
Section 3. Covenants Regarding Board Representation.
(a) Designation. As promptly as practicable after receipt of
written notice from Manor Care, Genesis will cause one person designated by
Manor Care to be appointed to Genesis's Board of Directors (the "Manor Care
Director") by such Board to serve as a member of Class I. At the end of the term
of any Manor Care Director, Manor Care shall have the right to designate the
same or a different person to serve as the Manor Care Director for the next term
and Genesis's Board of Directors shall appoint such person to its Board of
Directors. if at any time the Manor Care Director is not elected or the Manor
Care Observer is prohibited from attending Board meetings, Genesis shall appoint
another person designated by Manor Care to be a Manor Care Director or Manor
Care Observer, as the case may be. Any such designation of a Manor Care Director
for appointment to Genesis's Board of Directors or, pursuant to Section 3(c), of
a person to attend Board meetings as an observer, shall be made after
consultation with Genesis, and any such Manor Care Director or Manor Care
Observer shall be reasonably acceptable to Genesis's Board of Directors (which
agreement will not be unreasonably withheld). Genesis hereby agrees and
acknowledges that Jack Anderson and James H. Rempe are acceptable to Genesis's
Board of Directors as a Manor Care Director or Manor Care Observer. Genesis's
Board of Directors shall include in the slate of nominees recommended by such
Board to Genesis's shareholders for election as a director at each annual
meeting of the shareholders of Genesis at which members of Class I directors are
elected, the person then designated by Manor Care for election to Genesis's
Board of Directors in accordance with the provisions of this Section 3(a). In
the event that the Manor Care Director shall cease to serve as a director for
any reason, the vacancy resulting therefrom shall be filled by a designee of
Manor Care being appointed by the Board of Directors according to the procedures
described above.
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(b) Manor Care Observer. At any time that the Manor Care
Group does not have a Manor Care Director serving on Genesis's Board of
Directors, Manor Care shall be entitled to designate a non-voting observer for
such Board seat and such observer shall be entitled to attend all Board meetings
(the "Manor Care Observer").
(c) Confidential Information. The parties acknowledge and
agree that the Manor Care Director or Manor Care Observer, as the case may be,
will be under an obligation to Manor Care not to disclose to any person outside
of Manor Care, or use in any business other than Manor Care's, any confidential
information or material relating to the business of Manor Care or its
subsidiaries and that the Manor Care Director or Manor Care Observer shall be
under no obligation to disclose to Genesis' any corporate opportunities that the
Manor Care Director or Manor Care Observer becomes aware of because of his or
her position as an officer, director or employee of Manor Care or any of its
affiliates. The parties acknowledge that there shall be no obligation on the
part of such Manor Care Director or Manor Care Observer to disclose any such
information or material to Genesis, even if such disclosure would be of interest
or value to Genesis. In addition, the parties acknowledge and agree that any
Manor Care Director or Manor Care Observer will be under an obligation to
Genesis not to disclose to any person outside of Genesis, or use in any business
other than Genesis's, any confidential information or material relating to the
business of Genesis or its subsidiaries; provided that the Manor Care Director
or Manor Care Observer may disclose to the officers and directors of Manor Care
information about the financial position or results of operations of Genesis
(which information shall not include specific information about the day to day
operations of Genesis's business or any proposed acquisition, disposition or
other material action to be taken by Genesis) if any such Manor Care officer or
director agrees that any confidential information so disclosed to him or her
shall not be disclosed by him or her to any other person to whom such
information has not been so disclosed by the Manor Care Director or Manor Care
Observer, except as may be compelled by law or legal process.
(d) Removal of Directors; Vacancies. Manor Care shall have
the right to request the removal by Genesis's Board of Directors of the Manor
Care Director. Any such removal shall be subject to the applicable provisions of
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the Amended and Restated Articles of Incorporation and By-Laws of Genesis
(including, without limitation, any shareholder vote requirement), as well as
applicable statutory provisions; provided that Genesis will use its best efforts
to cause the Genesis Board of Directors to vote in favor of such requested
removal. In the event that the Manor Care Director for any reason ceases to
serve as a member of the Genesis Board of Directors during his or her term of
office and at such time Manor Care would have the right to designate a Manor
Care Director hereunder (a) the director to fill such vacancy ("Manor Care
Director Vacancy") shall be designated by Manor Care and shall be reasonably
acceptable to Genesis's Board of Directors, and (b) such Manor Care Director
Vacancy shall be filled in accordance with Article Eighth of Genesis's Amended
and Restated Articles of Incorporation.
Section 4. Voting of Genesis Common Stock and Other Related Matters
(a) Each member of the Manor Care Group that is a holder of
record of Voting Securities shall he present, and each member of the Manor Care
Group that is a beneficial owner of Voting Securities shall cause the holder of
record to be present, in person or by proxy, at all meetings of shareholders of
Genesis so that all Voting Securities owned of record or beneficially by the
Manor Care Group may be counted for the purpose of determining the presence of a
quorum at such meetings.
(b) At any time prior to April 26, 2001, other than with
respect to a proposed Change of Control, the Manor Care Group will take all such
action as may be required so that all Voting Securities owned by the Manor Care
Group are voted (in person or by proxy) on all matters to be voted on by holders
of Voting Securities in accordance with the recommendation of the Board of
Directors. Manor Care shall cause the Manor Care Director to take such action as
may be necessary and to vote in accordance with the recommendation of Genesis's
Board of Directors to fill any vacancies in Genesis's Board of Directors (other
than a Manor Care Director Vacancy).
(c) Manor Care shall not, with respect to a proposed Change
of Control approved by the Board of Directors of Genesis and the shareholders of
Genesis, make any demand for payment pursuant to Section 262 of the Delaware
General Corporation Law.
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As used herein, a proposed "Change of Control" occurs (A) when
the shareholders of Genesis are asked to approve an agreement or plan (i) to
merge or consolidate Genesis with or into another company (other than a"merger
or consolidation which would result in the Voting Securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
Genesis or such surviving entity outstanding immediately after such merger or
consolidation), or (ii) to sell, or otherwise dispose of, all or substantially
all of Genesis's property and assets, or (iii) to liquidate, dissolve or wind-up
Genesis or (B) when Genesis is the subject of a transaction pursuant to Rule
13e-3 under the Exchange Act.
REGISTRATION RIGHTS
Section 5. Registration Rights.
Genesis covenants and agrees as follows:
5.01.Definitions. For purposes of this Section 5:
(a) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Act").
(b) The term "Registrable Securities" means the shares of
Preferred Stock and Common Stock underlying such shares of Preferred Stock held,
from time to time, by the Manor Care Group.
(c) The term "Holder" means any member of the Manor Care
Group which owns of record Registrable Securities.
5.02. Request for Registration.
(a) If Genesis shall, at any time following the first
anniversary of the Effective Time, receive a written request from the Holders of
Registrable Securities representing at least 25% of the Voting Securities
acquired by the Manor Care Group at the Effective Time that Genesis file a
registration statement under the Act covering the registration of Registrable
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Securities, then Genesis shall, within 10 days after the receipt thereof, give
written notice of such request to all Holders and effect within 90 days of the
receipt of such request, the registration under the Act on a Form S-1 or other
appropriate form covering the sale of all Registrable Securities which the
Holders request to be registered.
(b) If the Holders initiating the registration request
hereunder (the "Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise Genesis as a part of their request made pursuant to this Section 5.02 and
Genesis shall include such information in the written notice referred to in
Section 5.02(a). In such event, the right of any Holder to include Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute Registrable Securities through such underwriting
shall (together with Genesis) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Initiating Holders and reasonably acceptable to Genesis. Genesis at its sole
discretion may offer a right to participate in any registration statement filed
pursuant to this Section 5.02 to other holders of Common Stock, and may itself
participate in any registration statement filed pursuant to this Section 5.02.
However, notwithstanding any other provision of this Section 5.02, if the
offering is an underwritten offering and the lead managing underwriter advises
the Initiating Holders that marketing factors require a limitation of the number
of shares of Preferred Stock or Common Stock to be underwritten, then (subject
to any contrary provisions in registration rights agreements executed by Genesis
prior to the date hereof) the total number of shares of Preferred Stock or
Common Stock to be underwritten shall be reduced, with such reduction coming
first from selling stockholders who are not Holders, and then from Genesis.
(c) Genesis is obligated to effect no more than three such
registrations pursuant to this Section 5.02.
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(d) Notwithstanding the foregoing, if Genesis shall furnish to
Holders requesting a registration statement pursuant to this Section 5.02 a
certificate signed by the Chief Executive, Chief Operating, or Chief Financial
Officer of Genesis stating that, in the good faith judgment of a majority of the
disinterested directors, it would be materially detrimental to Genesis for such
registration statement to be filed, Genesis shall have the right to defer such
filing for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that Genesis may not utilize this right
more than once in any 12-month period.
5.03.Piggyback Registration.
(a) If (but without any-obligation to do so), prior to April
26, 2003, Genesis proposes to register any of its Common Stock under the Act
in connection with the public offering of such Common Stock by Genesis (other
than a registration relating solely to the sale of securities to participants
in a dividend reinvestment plan, stock plan or employee benefit plan; a
registration relating solely to the issuance of securities to the security
holders of an acquired company in connection with an acquisition; or a
registration on any form which does not permit inclusion of selling
stockholders), or Genesis proposes to register any of its Common Stock on
behalf of a holder of Common Stock exercising demand registration rights
similar to those set forth in Section 5.02, (which shall not include a shelf
registration) Genesis shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within 15 days after mailing of such notice by Genesis, Genesis shall cause to
be registered under the Act all of the Common Stock that each such Holder has
requested to be registered.
However, notwithstanding any other provision of this Section
5.03, if the offering is an underwritten offering and the lead managing
underwriter advises the Holders that marketing factors require a limitation of
the number of shares of Common Stock to be underwritten, then (subject to any
contrary provisions in registration rights agreements executed by Genesis
prior to the date hereof) the total number of shares of Common Stock to be
underwritten shall be reduced, with such reduction coming first from the
Holders.
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5.04. Expenses of Registration.
All expenses incurred by or on behalf of Genesis in
connection with registrations, filings or qualifications pursuant to Sections
5.02 and 5.03, including, without limitation, all registration, filing and
qualification fees, printers, and accounting fees, and fees and disbursements
of counsel for Genesis and one counsel to the selling Holders, shall be borne
by Genesis. In no event shall Genesis be obligated to bear any underwriting
discounts or commissions relating to Registrable Securities.
5.05. Obligations of Genesis. Whenever required under this
Section 5 to effect the registration of any Registrable Securities, Genesis
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to fifteen
business days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may he necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such states or other jurisdictions as shall be reasonably
requested by the Holders, provided that Genesis shall not be required to
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qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the underwriters of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and then use its best efforts to promptly correct such statement or
omission. Notwithstanding the foregoing and anything to the contrary set forth
in this Section 5.05, each Holder acknowledges that there may occasionally be
times when Genesis must suspend the use of the prospectus forming a part of
the registration statement until such time as an amendment to the registration
statement has been filed by Genesis and declared effective by the SEC, or
until such time as Genesis has filed an appropriate report with the SEC
pursuant to the Exchange Act. Each Holder hereby covenants that it will (a)
keep any such notice strictly confidential, and (b) not sell any shares of
Preferred Stock or Common Stock pursuant to such prospectus during the period
commencing at the time at which Genesis gives the Holder notice of the
suspension of the use of such prospectus and ending at the time Genesis gives
the Holder notice that it may thereafter effect sales pursuant to such
prospectus. Genesis shall only be able to suspend the use of such prospectus
for periods aggregating no more than 60 days in respect of any registration.
5.06. Indemnification.
In the event any Registrable Securities are included in a
registration statement under this Section 5:
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(a) To the extent permitted by law, Genesis will indemnify
and hold harmless each Holder and the affiliates of such Holder, and their
respective directors, officers, general and limited partners, agents and
representatives (and the directors, officers, affiliates and controlling
persons thereof), and each other person, if any, who controls such Holder
within the meaning of the Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus (but only if
such statement is not corrected in the final prospectus) contained therein or
any amendments or supplements thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading (but only if such
omission is not corrected in the final prospectus); provided, however, that
the indemnity agreement contained in this Section 5.06(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of Genesis (which
consent shall not be unreasonably withheld), nor shall Genesis be liable in
any such case for any such loss, claim, damage, liability or action which
arises solely out of or is solely based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in such registration statement by any such Holder or indemnified
person.
Each indemnified party shall furnish such information regarding itself or the
claim in question as an indemnifying party may reasonably request in writing
and as shall be reasonably required in connection with defense of such claim
and litigation resulting therefrom.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless Genesis, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls Genesis within the meaning of the Act, any underwriter, any other
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Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the Exchange Act or other federal
or state law, insofar as any such loss, claim, damage, liability or action
arises solely out of or is solely based upon (i) any Violation that occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in such registration statement and (ii) the failure
of the selling Holder, after actual receipt of any notice from the Company of
the happening of any event of the kind described in Section 5.05(f), to
discontinue disposition of such Registrable Securities covered by such
registration statement until such selling Holder has received copies of a
supplemented or amended prospectus, or until it is advised in writing by the
Company that the use of the applicable prospectus may be resumed, and has
received copies of any amendments or supplements thereto; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this Section 5.06(b) in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 5.06(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of such Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this Section
5.06(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 5.06 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 5.06,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to deliver written notice to the
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indemnifying party within a reasonable time after the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party
under this Section 5.06 to the extent of such prejudice, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 5.06. The indemnified party shall have the right, but not the
obligation, to participate in the defense of any action referred to above
through counsel of its own choosing and shall have the right, but not the
obligation, to assert any and all separate defenses, cross claims or
counterclaims which it may have, and the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the employment of
such counsel has been specifically authorized in advance by the indemnifying
party,(ii) counsel advises that there is a conflict of interest that prevents
counsel for the indemnifying party from adequately representing the interests
of the indemnified party, (iii) the indemnifying party does not employ counsel
that is reasonably satisfactory to the indemnified party, or (iv) the
indemnifying party fails to assume the defense or does not reasonably contest
such action in good faith,.in which case, if the indemnified party notifies
the indemnifying party that it elects to employ separate counsel, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party and the reasonable fees and expenses
of such separate counsel shall be borne by the indemnifying party; provided,
however, that, the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to
one firm acting as local counsel) for all indemnified parties.
(d) If the indemnification provided for in Section 5.06(a) or
5.06(b) is for any reason unavailable to an indemnified party in respect of
any losses, claims, damages or liabilities which are indemnifiable pursuant to
such Sections, then each indemnifying party under such paragraphs, in lieu of
indemnifying such indemnified party thereunder and in order to provide for
just and equitable contribution, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect the relative
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fault of the indemnifying party or parties on the one hand and the indemnified
party or parties on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof). The relative fault of
the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
Genesis on the one hand or such Holder or such other indemnified party, as the
case may be, on the other, the parties, relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances.
(e) The obligations of Genesis and the Holders under this
Section 5.06 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 5.06 and the
termination of this Agreement.
(f) The underwriting agreement (if any) entered into in
connection with any underwritten public offering of the Registrable Securities
shall contain provisions on indemnification and contribution that are no less
favorable to Holders of Registrable Securities than those provisions contained
in this Agreement. To the extent that the provisions on indemnification and
contribution contained in such underwriting agreement satisfy the foregoing
sentence but are in conflict with the provisions of Section 5.06, the
provisions in such underwriting agreement shall control.
5.07. Reports Under the Exchange Act.
With a view to making available to the Holders the benefits
of Rule 144 and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of Genesis to the public without
registration or pursuant to a registration on Form S-3, Genesis agrees to:
(a) use its commercially reasonable best efforts to make and
keep public information available, as those terms are understood and defined
in Rule 144;
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(b) use its commercially reasonable best efforts to file
with the SEC in a timely manner all reports and other documents required under
the Act and the Exchange Act; and
(c) furnish to any Holder forthwith upon request (i) a
written statement by Genesis as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of Genesis and such other reports and documents so filed by Genesis,
and (iii) such other information as may be reasonably requested in availing
any Holder of any rule or regulation of the SEC which permits the selling of
any such securities without registration.
5.08. Assignment of Registration Rights.
The rights to cause Genesis to register Registrable
Securities pursuant to Section 5.02 may only be assigned by a Holder to a
transferee or assignee of any Registrable Securities if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act and any such transferee or assignee shall
be a Holder for purposes of Section 5 entitled to the rights and subject to
the obligations of Section 5, including without limitation, the requirement
that a request for registration under Section 5.02 must be made by holders of
at least 25% of the Voting Securities acquired by the Manor Care Group at the
Effective Time.
Section 6. Termination.
(a) Notwithstanding any other provision of this Agreement,
this Agreement may be terminated, upon 60 days prior written notice to the
other party (i) by Manor Care, in its sole discretion, if Genesis breaches any
of its material obligations pursuant to this Agreement and such breach is
continuing on the 61st day following such notice, provided, however that the
rights of Manor Care contained in Sections 3 and 5 hereof shall survive such
termination; (ii) by Genesis, in its sole discretion, if Manor Care breaches
any of its material obligations pursuant to this Agreement and such breach is
continuing on the 61st day following such notice or (iii) by either party, in
its sole discretion, if the Merger Agreement is terminated.
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(b) Upon the disposition by the Manor Care Group to persons
who are not members of the Manor Care Group of greater than 50% of the Voting
Securities acquired by the Manor Care Group at the Effective Time, the
provisions of Sections 1, 2, 3 and 4 hereof shall terminate and be of no
further force or effect.
Section 7. Miscellaneous.
(a) Manor Care and Genesis each acknowledges and agrees that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state thereof having jurisdiction, in
addition to any other remedy to which they may be entitled at law or equity.
(b) If any provision of this Agreement is in violation of
any statute, rule, regulation, order or decree of any governmental authority,
court or agency, or subjects any member of the Manor Care Group to
governmental regulation to which it would not be subject except for such
provision, then such member of the Manor Care Group shall be relieved of its
obligations under such provision to the minimum extent necessary to cure such
violation or eliminate the applicability of such regulation.
(c) If requested in writing by Genesis, Manor Care shall
present or cause to be presented promptly all certificates representing Voting
Securities now owned or hereafter acquired by members of the Manor Care Group,
for the placement thereon of the following legend, which will remain thereon
as long as such voting Securities are subject to the restrictions contained in
this Agreement:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND THE OTHER PROVISIONS OF A RIGHTS AGREEMENT DATED
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AS OF APRIL 26, 1998, BETWEEN GENESIS HEALTH VENTURES, INC. AND MANOR CARE,
INC., AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. A
COPY OF SAID AGREEMENT IS ON FILE AT THE OFFICE OF THE CORPORATE SECRETARY OF
GENESIS HEALTH VENTURES, INC.
Genesis agrees that upon any transfer of Voting Securities
represented by legended certificates made in compliance with the provisions of
this Agreement, it will, upon the presentation to its transfer agent of the
certificates containing such legend, remove such legend from the certificates
being sold or registered.
(d) Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
(e) This Agreement contains the entire understanding of the
parties with respect to the transactions contemplated hereby and may be
amended only by an agreement in writing executed by the parties hereto.
(f) For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto and each
such executed counterpart shall be deemed to be, an original instrument.
(g) All notices and other communications hereunder shall he
in writing and shall be delivered personally, by next-day courier or mailed by
registered or certified mail (return receipt requested), first class postage
prepaid, or sent by facsimile, telegram or telex, to the parties at the
addresses specified below (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall
be effective only upon receipt thereof). Any such notice shall be effective
upon receipt, if personally delivered or telecommunicated, one day after
delivery to a courier for next-day delivery, or three days after mailing, if
deposited in the U.S. mail, first class postage prepaid.
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(i) if to Manor Care, to:
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, Maryland 20878
Attention: James H. Rempe, Esq.,
General Counsel
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Telecopy: (212) 269-5420
Attention: W. Leslie Duffy, Esq.
(ii) if to Genesis, to:
Genesis Health Ventures, Inc.
148 West State Street West State Street
Kennett Square, Pennsylvania 19348
Attention: Ira Gubernick, Esq., General Counsel
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Stephen E. Luongo, Esq.
(h) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein.
(i) Each of Manor Care and Genesis has all necessary power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Manor Care and Genesis and the
consummation by each of Manor Care and Genesis of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Manor Care and Genesis, respectively. This Agreement has been
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duly and validly executed and delivered by each of Manor Care and Genesis and,
assuming the due authorization, execution and delivery by the other party,
constitutes a legal, valid and binding obligation of each of Manor Care and
Genesis, enforceable against each of them in accordance with its terms, except
that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting creditors, rights generally.
(j) This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but, except as set forth in Section 5.08 of
this Agreement, this Agreement and,~any of the rights, interests or obligations
hereunder shall not be assigned by any of the parties hereto without the prior
written consent of the other parties; provide , however, that Manor Care may
assign all of its rights and obligations under this Agreement to a direct or
indirect subsidiary of Manor Care which is to be spun off as provided in the
Form 10 filed with the Securities and Exchange Commission by New ManorCare
Health Services, Inc. and Manor Care shall be released from any further
obligations under or with respect to this Agreement other than pursuant to
Section 1. Genesis hereby consents to the Manor Care Group's transfer of any or
all shares of Preferred Stock or Common Stock owned by the Manor Care Group to
Manor Care, New Manor Care Heath Services, Inc., or any of their respective
wholly owned subsidiaries if such transferee agrees to be bound by the terms of
this Agreement.
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IN WITNESS WHEREOF, Manor Care and Genesis have caused this
Agreement to be duly executed by their respective officers, each of whom is duly
authorized, all as of the day and year first above written.
GENESIS HEALTH VENTURES, INC.
BY:________________________________
Name:
Title:
MANOR CARE, INC.
BY:________________________________
Name:
Title:
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THIS INDENTURE, dated as of the 23rd day of December, 1998
between GENESIS HEALTH VENTURES, INC., a corporation duly organized and existing
under the laws of the Commonwealth of Pennsylvania (hereinafter referred to as
the "Company"), and The Bank of New York, a New York banking corporation (not in
its individual capacity but solely as trustee hereunder, hereinafter referred to
as the "Trustee").
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized an issue of its 9-7/8% Senior Subordinated Notes due 2009
(hereinafter referred to as the "Initial Notes") and 9-7/8% Senior Subordinated
Notes due 2009 (the "Exchange Notes" and, together with the Initial Notes, the
"Notes") which Exchange Notes are to be issued in exchange for the Initial Notes
pursuant to the Registration Rights Agreement and containing terms identical in
all material respects to the Initial Notes (except that (i) the transfer
restrictions thereon shall be eliminated and (ii) there will be no provision for
the payment of interest rate increases); and, to provide the terms and
conditions upon which the Notes are to be authenticated, issued and delivered,
the Company has duly authorized the execution and delivery of this Indenture;
and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee as in
this Indenture provided, the valid, binding and legal obligations of the
Company, and to constitute these presents a valid indenture and agreement
according to its terms, have been done and performed, and the execution and
delivery of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized, and the Company, in the exercise of the legal
right and power vested in it, executes and delivers this Indenture and proposes
to make, execute, issue and deliver the Notes;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Notes are authenticated, issued, delivered and held, and in consideration of
the premises, of the purchase and acceptance of the Notes by the holders thereof
and of the sum of one dollar to it duly paid by the Trustee at the execution of
these presents, the receipt whereof is hereby acknowledged, the Company
covenants and agrees with the Trustee, for the equal and proportionate benefit
of the respective holders from time to time of the Notes, as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
SECTION I.1 Certain terms defined. The terms defined in this
Section 1.1 (except as herein otherwise expressly provided or unless the context
otherwise requires), for all purposes of this Indenture and of any indenture
supplemental hereto, shall have the respective meanings specified in this
Section 1.1.
"Acquired Indebtedness" means Indebtedness of a Person (i)
existing at the time such Person becomes a Subsidiary or (ii) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Subsidiary or such acquisition. Acquired Indebtedness shall be
deemed to be incurred on the date of the related acquisition of assets from any
Person or the date the acquired Person becomes a Subsidiary.
"Affiliate" means with respect to any specified Person, (i)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person, (ii) any other
Person that owns, directly or indirectly, 5% or more of such specified Person's
Capital Stock, (iii) any officer or director of (A) any such specified Person,
(B) any Subsidiary of such specified Person or (C) any Person described in
clauses (i) or (ii) above or (iv) any other Person having a relationship with
any natural Person described in clauses (i), (ii) or (iii) above by blood,
marriage or adoption not more remote than first cousin or any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such other Person described in this clause (iv). For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or its
Subsidiaries; or (iii) any other properties or assets of the Company or any
Subsidiary, other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include (i) any transfer of
properties and assets that is governed by the provisions described under Article
XII, (ii) any transfer of properties or assets of the Company to any Wholly
Owned Subsidiary, or of any Subsidiary to the Company or any Wholly Owned
Subsidiary in accordance with the terms hereof or (iii) transfers of properties
or assets in any twelve month period (A) the Fair Market Value of which does
not, in the aggregate, exceed 2.5% of the Company's Consolidated Total Assets
and (B) the Consolidated EBITDA related to such properties or assets does not,
in the aggregate, exceed 2.5% of the Company's Consolidated EBITDA.
"Attributable Debt" in respect of a sale-leaseback transaction
or an operating lease in respect of a healthcare facility means, at the time of
determination, the present value (discounted at the interest rate implicit in
the lease, compounded semi-annually) of the obligation of the lessee of the
property subject to such sale-leaseback transaction or operating lease in
respect of a healthcare facility for rental payments during the remaining term
of the lease included in such transaction including any period for which such
lease has been extended or may, at the option of the lessor, be extended or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which case the rental payments shall
include such penalty), after excluding all amounts required to be paid on
account of maintenance and repairs, insurance, taxes, assessments, water,
utilities and similar charges.
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3
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Code, as
amended, or any similar United States Federal or State law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors", when used with reference to the Company,
means the Board of Directors of the Company, or the executive committee of the
Board of Directors of the Company, or any other committee of the Board of
Directors of the Company lawfully empowered to take the action in connection
with which such term is used.
"Book-Entry Note" means a Note represented by a Global Note
and registered in the name of the nominee of the Depository.
"Business Day" means a day other than a Saturday, a Sunday or
a day which shall be in The City of New York, New York a day on which banking
institutions are authorized or obligated by law or required by executive order
to be closed or a day other than a day on which the Trustee or the Paying Agent
is authorized or obligated by law or required by executive order to be closed.
"Capital Lease Obligation" of any Person means any obligation
of such Person and its Subsidiaries on a Consolidated basis under any capital
lease of real or personal property which, in accordance with GAAP, has been
recorded on the balance sheet of such Person as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock or equity interests.
<PAGE>
4
"Cash Equivalent" means (i) any security, maturing not more
than six months after the date of acquisition, issued by the United States of
America, or an instrumentality or agency thereof and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, (ii)
any certificate of deposit, time deposit, money market account or bankers'
acceptance, maturing not more than six months after the date of acquisition,
issued by any commercial banking institution that is a member of the Federal
Reserve System and that has combined capital and surplus and undivided profits
of not less than $500,000,000, whose debt has a rating, at the time as of which
any investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard and Poor's Corporation or any successor rating agency and
(iii) commercial paper, maturing not more than three months after the date of
acquisition, issued by any corporation (other than an Affiliate or Subsidiary of
the Company) organized and existing under the laws of the United States of
America with a rating, at the time as of which any investment therein is made,
of "P-1" (or higher) according to Moody's Investors Service, Inc. or any
successor rating agency, or "A-1" (or higher) according to Standard and Poor's
Corporation or any successor rating agency.
"Change in Control" means the occurrence of any of the
following events: (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), in a single transaction or through a series of
related transactions, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the
total Voting Stock of the Company; (ii) the Company consolidates or merges with
or into another corporation or conveys, transfers or leases all or substantially
all of its assets to any Person, or any corporation consolidates or merges with
or into the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding Voting Stock of the Company is changed into or exchanged for (x)
Voting Stock of the surviving corporation which is not Redeemable Capital Stock
or (y) cash, securities or other property in an amount which could be paid by
the Company as a Restricted Payment as described under Section 5.10 (and such
amount shall be treated as a Restricted Payment subject to the provisions of
Section 5.10), and (B) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
50% of the Voting Stock of the surviving corporation immediately after such
transaction; (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least 66-2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the date hereof such Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Company" means Genesis Health Ventures, Inc., a corporation
incorporated under the laws of Pennsylvania, until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Company" shall mean such successor Person. To the extent necessary
to comply with the requirements of the provisions of Trust Indenture Act
Sections 310 through 317 as they are applicable to the Company, the term
"Company" shall include any other obligor with respect to the Notes for purposes
of complying with such provisions.
<PAGE>
5
"Consolidated EBITDA" of any Person means with respect to any
determination date, Consolidated Net Income before extraordinary items and gains
or losses realized in connection with Asset Sales, plus (i) Consolidated Income
Tax Expense, plus (ii) consolidated depreciation expense, plus (iii)
consolidated amortization expense, plus (iv) Consolidated Interest Expense, plus
(v) all other non-cash items reducing Consolidated Net Income of such Person and
its Subsidiaries, determined on a Consolidated basis in accordance with GAAP,
and less all non-cash items increasing Consolidated Net Income of such Person
and its Subsidiaries, determined on a consolidated basis in accordance with
GAAP, in each case, for such Person's prior four full fiscal quarters for which
financial results have been reported immediately preceding the determination
date.
"Consolidated Income Tax Expense" means for any period, as
applied to any Person, the provision for federal, state, local and foreign
income taxes of such Person and its Consolidated Subsidiaries for such period as
determined in accordance with GAAP.
"Consolidated Interest Expense" of any Person means, without
duplication, for any period, as applied to any Person, the sum of (i) the
interest expense of such Person and its Consolidated Subsidiaries for such
period on a consolidated basis, including, without limitation, (a) amortization
of debt discount, (b) the net cost under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid, or accrued
by such Person during such period, in each case as determined in accordance with
GAAP, plus (iii) Preferred Stock dividends in respect of Preferred Stock of the
Company or any Subsidiary held by Persons other than the Company or a Wholly
Owned Subsidiary. For purposes of clause (iii) of the preceding sentence,
dividends shall be deemed to be an amount equal to the actual dividends paid
divided by one minus the applicable actual combined Federal, state, local and
foreign income tax rate of the Company and its Consolidated Subsidiaries
(expressed as a decimal).
"Consolidated Net Income (Loss)" of any Person means, for any
period, the Consolidated net income (or loss) of the Company and its
Consolidated Subsidiaries for such period as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (loss), by
excluding (i) all extraordinary gains or losses (less all fees and expenses
relating thereto), (ii) the portion of net income of the Company and its
Consolidated Subsidiaries allocable to investments in unconsolidated Persons to
the extent that cash dividends or distributions have not actually been received
by the Company or one of its Consolidated Subsidiaries, (iii) net income (or
loss) of any Person combined with the Company or any of its Subsidiaries in a
"pooling of interests" basis attributable to any period prior to the date of
combination, (iv) any gain or loss, net of taxes, realized upon the termination
of any employee pension benefit plan, (v) any gains or losses (less all fees and
expenses relating thereto) in respect of dispositions of assets other than in
the ordinary course of business, or (vi) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Subsidiary or its shareholders.
<PAGE>
6
"Consolidated Net Worth" of any Person means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock) of such Person and its
Consolidated Subsidiaries, as set forth on the most recent consolidated balance
sheet of such Person and its Consolidated Subsidiaries determined in accordance
with GAAP.
"Consolidated Rental Payments" of any Person means, for any
period, the aggregate rental obligations of such Person and its Consolidated
Subsidiaries (not including taxes, insurance, maintenance and similar expenses
that the lessee is obligated to pay under the terms of the relevant leases),
determined on a consolidated basis in conformity with GAAP, payable in respect
of such period under Attributable Debt or leases of real or personal property
not constituting Attributable Debt (net of income from subleases thereof, not
including taxes, insurance, maintenance and similar expenses that the sublessee
is obligated to pay under the terms of such sublease), whether or not such
obligations are reflected as liabilities or commitments on a consolidated
balance sheet of such Person and its Subsidiaries or in the notes thereto,
excluding, however, in any event, (i) that portion of Consolidated Interest
Expense of such Person representing payments by such Person or any of its
Consolidated Subsidiaries in respect of Capital Lease Obligations (net of
payments to such Person or any of its Consolidated Subsidiaries under subleases
qualifying as capitalized lease subleases to the extent that such payments would
be deducted in determining Consolidated Interest Expense) and (ii) the aggregate
amount of amortization of obligations of such Person and its Consolidated
Subsidiaries in respect of such Capital Lease Obligations for such period (net
of payments to such Person or any of its Consolidated Subsidiaries and subleases
qualifying as capitalized lease subleases to the extent that such payments would
be deducted in determining such amortization amount).
"Consolidated Total Assets" of any Person means the
Consolidated total assets of such Person and its Consolidated Subsidiaries, as
set forth on the most recent consolidated balance sheet of such Person and its
Consolidated Subsidiaries determined in accordance with GAAP.
"Consolidation" means, with respect to any Person, the
consolidation of the accounts of such Person and each of its subsidiaries if and
to the extent the accounts of such Person and each of its subsidiaries would
normally be consolidated with those of such Person, all in accordance with GAAP.
The term "Consolidated" shall have a similar meaning.
"Convertible Debentures" means the Company's 6% Convertible
Senior Subordinated Debentures due 2003.
<PAGE>
7
"Credit Facility" means (i) the Third Amended and Restated
Credit Agreement, dated October 9, 1997, as first amended on March 5, 1998, as
second amended on August 28, 1998, and as third amended on December 15, 1998,
with Mellon Bank, N.A., Citibank USA, Inc., First Union National Bank and
NationsBank, N.A. as agents, as the same may be amended, restated, renewed,
extended, restructured, supplemented or otherwise modified from time to time,
(ii) any Loan Documents (as defined in the Third Amended and Restated Credit
Agreement as in effect from time to time) and any other documents or instruments
executed by the Company pursuant to or in connection with the Third Amended and
Restated Credit Agreement, and (iii) any credit agreement, loan agreement, note
purchase agreement, indenture or other agreement, document or instrument
refinancing, refunding or otherwise replacing the Third Amended and Restated
Credit Agreement or any other agreement deemed a Credit Facility under clause
(i), (ii) or (iii) hereof, whether or not with the same agent, trustee,
representative, lenders or holders, regardless of whether the Third Amended and
Restated Credit Agreement or Credit Facility or any portion thereof was
outstanding or in effect at the time of such restatement, renewal, extension,
restructuring, supplement or modification. Without limiting the generality of
the foregoing, the term "Credit Facility" shall include any amendment,
restatement, renewal, extension, restructuring, supplement or modification to
any Credit Facility and all refundings, refinancings and replacements of any
Credit Facility, including any agreement (a) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (b) adding or deleting
borrowers or guarantors thereunder, so long as such borrowers and guarantors
include one or more of the Company and its Subsidiaries and their respective
successors and assigns, provided that on the date thereof the addition of such
borrower or guarantor would not be prohibited by the definition of "Permitted
Indebtedness" and the provisions of Sections 5.14 and 5.16, (c) increasing the
amount of Indebtedness incurred thereunder or available to be borrowed
thereunder provided such increase is permitted to be incurred under the
definition of "Permitted Indebtedness" or is or will be permitted to be incurred
under Section 5.9 or (d) otherwise altering the terms and conditions thereof in
a manner not prohibited by the definition of "Permitted Indebtedness" and the
provisions of Sections 5.14, 5.16 and 5.17 and as such agreement may be amended,
renewed, extended, substituted, refinanced, replaced or otherwise modified from
time to time, and includes any agreement extending the maturity of all or any
portion of the Indebtedness thereunder.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Depository" shall mean The Depository Trust Company, New
York, New York, or its nominee or successors and assigns, or such other
depository institution hereinafter appointed by the Company.
"Designated Senior Indebtedness" means (i) all Senior
Indebtedness under or in respect of the Credit Facility and (ii) any other
Senior Indebtedness which, at the time of determination, has an aggregate
principal amount outstanding, together with any commitments to lend additional
amounts, of at least $30,000,000 and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness."
"Eligible Accounts Receivables" as of any date means the book
value of all accounts receivables of the Company and its Subsidiaries that would
be shown on a Consolidated balance sheet of the Company and its Subsidiaries
prepared on such date in accordance with GAAP, which are not more than 180 days
past their due date and were entered into on normal payment terms.
"Event of Default" means any event specified in Section 7.1,
continued for the period of time, if any, and after giving of notice, if any,
therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
8
"Exchange Notes" has the meaning provided in the preamble of
this Indenture.
"Exchange Offer" means, subject to the terms of the
Registration Rights Agreement, the offer by the Company to the Noteholders of
the opportunity to exchange their Initial Notes for Exchange Notes pursuant to a
registration statement filed with the Commission.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer.
"Fiscal Year" with respect to the Company shall mean the
fiscal year of the Company.
"Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (i) the sum of Consolidated Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense, and one-third of Consolidated
Rental Payments plus, without duplication, all depreciation, amortization and
all other non-cash charges (excluding any such non-cash charge constituting an
extraordinary item or loss or any non-cash charge which requires an accrual of
or a reserve for cash charges for any future period), in each case, for such
period, of the Company and its Subsidiaries on a Consolidated basis, as
determined in accordance with GAAP to (ii) the sum of (a) Consolidated Interest
Expense for such period and (b) one-third of Consolidated Rental Payments for
such period; provided that in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States, consistently
applied, as in effect on the date hereof.
"Global Note" means a Note evidencing all or part of the Notes
to be issued as Book-Entry Notes, issued to the Depository in accordance with
this Indenture.
"Guarantee" means the guarantee by any Guarantor which
guarantees the Indenture Obligations pursuant to a guarantee given in accordance
with this Indenture.
<PAGE>
9
"Guaranteed Debt" of any Person means, without duplication,
all Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring that
such property be received or such services be rendered), (iv) to maintain
working capital or equity capital of the debtor, or otherwise to maintain the
net worth, solvency or other financial condition of the debtor or (v) otherwise
to assure a creditor against loss; provided that the term "Guaranteed Debt"
shall not include endorsements for collection or deposit, in either case in the
ordinary course of business.
"Guarantor" means any Person which guarantees the Indenture
Obligations pursuant to this Indenture.
"Healthcare Related Business" means a business, the majority
of whose revenues result from healthcare, long-term care, or managed care
related businesses or facilities, including businesses which provide insurance
relating to the costs of healthcare, long-term care or managed care services.
<PAGE>
10
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit or
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities and in connection with any agreement to purchase,
redeem, exchange or otherwise acquire for value any Capital Stock of such
Person, or any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, (ii) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (iii) every obligation of such
Person issued or contracted for as payment in consideration of the purchase by
such Person or an Affiliate of such Person of the Capital Stock or substantially
all of the assets of another Person or in consideration for the merger or
consolidation with respect to which such Person or an Affiliate of such Person
was a party (other than any obligation of such Person to pay an amount to
another Person based on income in respect of Capital Stock or assets which were
purchased or in respect of such merger to which such Person or an Affiliate was
a party except for such obligations which are required in accordance with GAAP
to be classified as a liability on the balance sheet of such Person), (iv) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables and other accrued current liabilities arising in the
ordinary course of business, (v) all obligations under Interest Rate Contracts
of such Person, (vi) all Capital Lease Obligations of such Person, (vii) all
indebtedness referred to in clauses (i) through (vi), (ix) and (x) of other
Persons and all dividends of other Persons, the payment of which is secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien, upon any property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness,
(viii) all Guaranteed Debt of such Person, (ix) all Redeemable Capital Stock
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends and (x) all Attributable Debt of such
Person. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the Board of
Directors of the issuer of such Redeemable Capital Stock.
"Indenture" means this instrument as originally executed, or,
if amended or supplemented as herein provided, as so amended or supplemented.
<PAGE>
11
"Indenture Obligations" means the obligations of the Company
and any other obligor hereunder or under the Notes, including any Guarantor, to
pay principal of, premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with this Indenture,
the Notes and the performance of all other obligations to the Trustee and the
holders under this Indenture and the Notes, according to the terms thereof.
"Initial Notes" has the meaning provided in the preamble to
this Indenture.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"Interest Rate Contracts" means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other agreements or arrangements designed to provide protection
against fluctuations in interest rates.
"Investments" means, with respect to any Person, directly or
indirectly, any advance, loan or other extension of credit (including any
guarantee) or capital contribution to (by means of any transfer of cash or other
property (tangible or intangible) to others, or any payment for property or
services for the account or use of others or otherwise), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities (including, without limitation, any interests in
any partnership or joint venture) issued or owned by any other Person.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Maturity" when used with respect to any Note means the date
on which the principal of such Note becomes due and payable as therein provided
or as provided herein, whether at Stated Maturity, or any redemption date and
whether by declaration of acceleration, Offer in respect of Excess Proceeds,
Change in Control Offer in respect of a Change in Control, call for redemption
or otherwise.
<PAGE>
12
"Net Cash Proceeds" means, with respect to any Asset Sale by
any Person, the proceeds thereof in the form of cash or Cash Equivalents
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Subsidiary) net of (i) brokerage commissions
and other reasonable fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (v) appropriate amounts to
be provided by the Company or any Subsidiary, as the case may be, as a reserve,
in accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee.
"9 1/4% Notes" means the Company's 9 1/4% Senior Subordinated
Notes due 2006.
"9 3/4% Notes" means the Company's 9 3/4% Senior Subordinated
Notes due 2005.
"Non-payment Default" means any default or event of default
under or in respect of any Designated Senior Indebtedness, other than a Payment
Default.
"Notes" has the meaning provided in the preamble to this
Indenture.
"Noteholder; Registered Holder; Holder; or Holder of Notes" or
other similar terms means any person who shall at the time be the registered
holder of any Note or Notes in the Note Register kept for that purpose in
accordance with the provisions of this Indenture.
"Note Register and Note Registrar" shall have the respective
meanings specified in Section 2.5.
"Officers' Certificate" means a certificate signed by the
Chief Executive Officer or the President or any Vice President and by the Chief
Financial Officer or Treasurer or the Secretary or an Assistant Secretary of the
Company. Each such certificate shall include the statements provided for in
Section 15.5.
"Opinion of Counsel" means an opinion in writing signed by
legal counsel of the Company. Each such opinion shall include the statements
provided for in Section 15.5.
"outstanding", when used with reference to Notes, subject to
the provisions of Section 9.4, means, as of any particular time, all Notes
authenticated and delivered by the Trustee under this Indenture, except
(a) Notes theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
<PAGE>
13
(b) Notes, or portions thereof, for the payment or redemption
of which moneys in the necessary amount shall have been deposited in
trust with the Trustee, provided that such Notes shall have reached
their stated maturity or, if such Notes are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as
provided in Article IV; and
(c) Notes in lieu of or in substitution for which other Notes
shall have been authenticated and delivered pursuant to the terms of
Section 2.7, unless the holder thereof demonstrates to the Trustee that
any such Notes are held by bona fide holders in due course.
"Payment Default" means any default in the payment when due
(at maturity, upon acceleration of maturity, upon mandatory prepayment or
otherwise) of any amount owing under or in respect of any Designated Senior
Indebtedness.
"Permitted Indebtedness" means:
(a) Indebtedness of up to $300,000,000 outstanding principal
amount under the Credit Facility;
(b) any guarantee by the Company or any Subsidiary under the
Credit Facility;
(c) Indebtedness in existence on the date hereof;
(d) Indebtedness of the Company pursuant to the Notes;
(e) Indebtedness evidenced by letters of credit issued in the
ordinary course of business consistent with past practice to support
the Company's or any Subsidiary's insurance or self-insurance
obligations (including to secure workers' compensation and other
similar insurance coverages);
(f) Interest Rate Contracts, to the extent that the notional
principal amount of such obligations does not exceed the amount of
Indebtedness outstanding or committed to be incurred on the date such
Interest Rate Contracts are entered into;
(g) Indebtedness of the Company to a Wholly Owned Subsidiary
(provided that any Indebtedness of the Company owing to a Wholly Owned
Subsidiary is subject to the Intercompany Agreement) and Indebtedness
of a Subsidiary to the Company or another Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any other subsequent
transfer of any such Indebtedness (except to the Issuer or a Wholly
Owned Subsidiary) shall be deemed, in each case to be incurred and
shall be treated as an incurrence for purposes of Section 5.9 hereof at
the time the Wholly Owned Subsidiary in question ceased to be a Wholly
Owned Subsidiary;
<PAGE>
14
(h) any guarantees of Indebtedness by a Subsidiary entered
into in accordance with Section 5.16;
(i) Indebtedness incurred by the Company or any Subsidiary
consisting of Purchase Money Obligations in an amount not to exceed
$15,000,000 at any one time outstanding;
(j) Indebtedness incurred by the Company or any Wholly Owned
Subsidiary consisting of Capital Lease Obligations in an amount not to
exceed $15,000,000 at any time outstanding;
(k) Indebtedness of the Company or any Wholly Owned
Subsidiary, in addition to that described in clauses (a) through (k) of
this definition of "Permitted Indebtedness," in an aggregate principal
amount outstanding at any given time not to exceed $40,000,000; and
(l) any renewals, extensions, substitutions, refundings,
refinancings or replacements of any Indebtedness described in clauses
(a) through (e) of this definition of "Permitted Indebtedness,"
including any successive renewals, extensions, substitutions,
refundings, refinancings or replacements, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount
as of the date of determination) so refinanced, plus the amount of any
premium required to be paid under the terms of the instrument governing
such Indebtedness being refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing through means of a tender offer or privately negotiated
transactions and, in each case, actually paid, plus the amount of
expenses of the Company incurred in connection with such refinancing;
(ii) in the case of any refinancing of Subordinated Indebtedness, such
new Indebtedness is made subordinate to the Notes at least to the same
extent as the Indebtedness being refinanced; and (iii) any such new
Subordinated Indebtedness has an Average Life to Stated Maturity longer
than the Average Life to Stated Maturity of the Notes and a final
Stated Maturity later than the final Stated Maturity of the Notes.
<PAGE>
15
"Permitted Investment" means (i) the Notes or any Guarantees;
(ii) Temporary Cash Investments; (iii) Indebtedness of the Company to a
Subsidiary (provided that any Indebtedness of the Company owing to a Wholly
Owned Subsidiary is subject to the Intercompany Agreement) and Indebtedness of a
Subsidiary to the Company or another Subsidiary; (iv) Investments in existence
on the date hereof; (v) Investments in any Wholly Owned Subsidiary by the
Company or any Wholly Owned Subsidiary or any Investment in the Company by any
Wholly Owned Subsidiary; (vi) receivables owing to the Company and its
Subsidiaries if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (vii)
Investments in Permitted Joint Ventures; (viii) Investments in any Healthcare
Related Businesses, provided that the Company is able, at the time of such
Investment and immediately after giving pro forma effect thereto, to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 5.9; (ix) Investments acquired or retained from another
Person in connection with any sale, conveyance, transfer, lease or other
disposition of any properties or assets to such Person in accordance with
Section 5.13; and (x) in addition to Permitted Investments described in the
foregoing clauses (i) through (ix), Investments in the aggregate amount of
$20,000,000 at any one time outstanding.
"Permitted Joint Venture" means any Subsidiary which owns,
operates or services Healthcare Related Business.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock," as applied to any Person, means Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such corporation,
over shares of Capital Stock of any other class of such corporation.
"Private Placement Legend" means the legend initially set
forth on the Notes in the form set forth on Exhibit A-1.
"Property" means, with respect to any Person, all types of
real, personal, tangible, intangible or mixed property owned by such Person
whether or not included in the most recent consolidated balance sheet of such
Person.
"Public Equity Offering" means an underwritten public offering
of common stock (other than Redeemable Capital Stock) of the Company pursuant to
a registration statement that has been declared effective by the Commission
pursuant to the Securities Act (other than a registration statement on Form S-4,
Form S-8 or otherwise relating to equity securities issuable under any employee
benefit plan of the Company).
"Purchase Money Obligations" means any Indebtedness of the
Company or any Subsidiary incurred to finance the acquisition or construction of
any Property or business (including Indebtedness incurred within 90 days
following such acquisition or construction), including Indebtedness of a Person
existing at the time such Person becomes a Subsidiary or assumed by the Company
or a Subsidiary in connection with the acquisition of assets from such Person;
provided, however, that any Lien on such Indebtedness shall not extend to any
Property other than the Property so acquired or constructed.
"Qualified Capital Stock" of any Person means any and all
Capital Stock of such Person other than Redeemable Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
<PAGE>
16
"Redeemable Capital Stock" means any Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or otherwise, is, or upon the happening of an event or passage
of time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Notes or is redeemable at the option of the holder thereof at
any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Redemption Date" when used with respect to any Note to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Regulation S" means Regulation S under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and the other
parties thereto, relating to the Exchange Offer as such agreement may be
amended, modified or supplemented from time to time.
"Responsible Officer" when used with respect to the Trustee,
means any officer including, without limitation, any vice president, any
assistant vice president, any assistant treasurer or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Security" has the meaning set forth in Rule
144(a)(3) under the Securities Act; provided, that the Trustee shall be entitled
to request and rely upon an Opinion of Counsel with respect to whether any Note
is a Restricted Security.
"Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
17
"Senior Indebtedness" means all obligations of the Company or
any Subsidiary or Affiliate of the Company, now or hereafter existing, under or
in respect of the Credit Facility, whether for principal, interest (including
interest accruing after the filing of a petition by or against the Company under
any state or federal Bankruptcy Laws, whether or not such interest is allowed as
a claim after such filing in any proceeding under such law) or otherwise
(including obligations in respect of the lease financing facility of the Credit
Facility) and the principal of, premium, if any, and interest on all other
Indebtedness of the Company (other than the Notes), whether outstanding on the
date hereof or hereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the Notes, (ii) Indebtedness evidenced by the 9-3/4%
Notes or the 9-1/4% Notes, (iii) Indebtedness that is by its terms subordinate
or junior in right of payment to any Indebtedness of the Company, (iv)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of the Bankruptcy Law is without recourse to the Company, (v)
Indebtedness which is represented by Redeemable Capital Stock, (vi) Indebtedness
for goods, materials or services purchased in the ordinary course of business or
Indebtedness consisting of trade payables or other current liabilities (other
than any current liabilities owing under, or in respect of, the Credit
Facility), (vii) Indebtedness of or amounts owed by the Company for compensation
to employees or for services, (viii) any liability for federal, state, local or
other taxes owed or owing by the Company, (ix) Indebtedness of the Company to a
Subsidiary of the Company or any other Affiliate of the Company or any of such
Affiliate's subsidiaries, (x) that portion of any Indebtedness which at the time
of issuance is issued in violation of this Indenture, and (xi) amounts owing
under leases (other than Capital Lease Obligations and obligations in respect of
the lease financing facility of the Credit Facility).
"Stated Maturity" when used with respect to any Indebtedness
or any installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
subordinated in right of payment to the Notes.
"Subsidiary" means (i) a corporation (a) at least 50% of the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company and (b) of which the Company, directly or indirectly, has the right to
elect a majority of the members of the Board of Directors either as a result of
the ownership of a majority of the Voting Stock of such corporation or pursuant
to a shareholders or other voting agreement or (ii) any partnership, joint
venture, limited liability company or similar entity at least 50% of the total
equity and voting interests of which (x) is at the time owned, directly or
indirectly, by the Company whether in the form of membership, general, special
or limited partnership, or otherwise and (y) the Company or any Wholly Owned
Subsidiary is a controlling general partner or otherwise controls such entity.
"Temporary Cash Investments" means (i) any evidence of
Indebtedness, maturing not more than one year after the date of acquisition,
issued by the United States of America, or an instrumentality or agency thereof
and guaranteed fully as to principal, premium, if any, and interest by the
United States of America, (ii) any certificate of deposit, maturing not more
than one year after the date of acquisition, issued by, or time deposit of, a
commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less than
$500,000,000, whose debt has a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's Investors Service,
Inc. or any successor rating agency, or "A-1" (or higher) according to Standard
and Poor's Corporation or any successor rating agency and (iii) commercial
paper, maturing not more than one year after the date of acquisition, issued by
a corporation (other than an Affiliate or Subsidiary of the Company) organized
and existing under the laws of the United States of America with a rating, at
the time as of which any investment therein is made, of "P-1" (or higher)
according to Moody's Investors Service, Inc. or any successor rating agency, or
"A-1" (or higher) according to Standard and Poor's Corporation or any successor
rating agency.
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18
"Trustee" means the person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"U.S. Government Obligations" means securities which are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust Company as custodian with
respect to any such U.S. Government Obligations or a specific payment of
interest on or principal of any such U.S. Government Obligations held by such
custodian for the account of the holder of a depository receipt; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligations or the specific payment of interest on or principal of the U.S.
Government Obligations evidenced by such depository receipt.
"Voting Stock" means stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time stock
of any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital
Stock of which is owned by the Company or another Wholly Owned Subsidiary.
SECTION I.2 Other Definitions.
Defined in
Term Section
---- ----------
"Acquisition Survivor".............................. 12.1(c)
"applicants"....................................... 6.2(b)
"Asset Sale Offer Amount".......................... 5.13(c)
"Certificated Notes"................................ 2.2
"Change in Control Offer"........................... 4.5(a)
"Change in Control Purchase Date"................. 4.5(c)
"Change in Control Purchase Price".................. 4.5(a)
"covenant defeasance"............................... 13.1(c)
"Deficiency"........................................ 5.13(c)
"Excess Proceeds.................................... 5.13(b)
"Initial Blockage Period"........................... 3.3(b)
"legal defeasance".................................. 13.1(b)
"Offered Price"..................................... 5.13(c)
"Payment Blockage Period"........................... 3.3(b)
"Permitted Junior Notes"............................ 3.2(a)
"Permitted Preferred Stock"......................... 5.11(a)
"record date"....................................... 2.3
"Restricted Payments"............................... 5.10(d)
"Senior Representative"............................. 3.1
"Surviving Entity".................................. 12.1(a)
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SECTION I.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture.
The following Trust Indenture Act terms used in this Indenture
have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes means the Company, any other obligor
upon the Notes or any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the
Trust Indenture Act, defined by Trust Indenture Act reference to another statute
or defined by Commission rule under the Trust Indenture Act have the meanings so
assigned to them.
SECTION I.4 Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular;
(e) provisions apply to successive events and transactions;
and
(f) Unless the context otherwise requires, all references
herein to "Articles", "Sections" and other subdivisions refer to the
corresponding Articles, Sections and other subdivisions of this
Indenture, and the words "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision hereof.
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20
ARTICLE II
ISSUE, DESCRIPTION, REGISTRATION
AND EXCHANGE OF NOTES
SECTION II.1 Designation, amount, authentication and delivery
of Notes. The Trustee shall authenticate (i) Initial Notes for original issue in
the aggregate principal amount of $125,000,000 and (ii) Exchange Notes from time
to time for issue, in the aggregate principal amount not to exceed $125,000,000
for issuance in exchange for a like principal amount of Initial Notes pursuant
to an exchange offer registration statement under the Securities Act, in each
case upon receipt of a written order of the Company signed by its Chief
Executive Officer, President or a Vice President without any further corporate
action by the Company. The Initial Notes shall be designated as 9-7/8% Senior
Subordinated Notes due 2009. Exchange Notes may have such distinctive series
designation as, and such changes in the form thereof, as are specified in the
written order referred to in the preceding sentence. Such written order with
respect to the Initial Notes or the Exchange Notes shall specify the amount of
Notes to be authenticated, the series and type of Notes and the date on which
the Notes are to be authenticated, whether the Notes are to be Initial Notes or
Exchange Notes, whether the Notes are to be Certificated Notes or a Global Note
and whether or not the Notes shall bear the Private Placement Legend, or such
other information as the Trustee may reasonably request (such specification can
be provided by attaching a form of Note consistent with the provisions hereof
containing such information). The aggregate principal amount of Notes
outstanding at any time may not exceed $125,000,000, except as provided in
Section 2.7.
Nothing contained in this Section 2.1 or elsewhere in this
Indenture, or in the Notes, is intended to or shall limit execution by the
Company or authentication or delivery by the Trustee of Notes under the
circumstances contemplated by Sections 2.5, 2.6, 2.7, 4.3 and 11.5.
SECTION II.2 Form of Notes and Trustee's certificate. The
Initial Notes and the Exchange Notes and the Trustee's certificate of
authentication to be borne by the Notes shall be substantially in the form of
Exhibits A-1 and A-2, respectively, which exhibits are part of this Indenture.
The Notes may have such letters, numbers or other marks of identification or
designation and such legends or endorsements printed, lithographed or engraved
thereon as the officers executing the same may deem appropriate and as are not
inconsistent with the provisions of this Indenture, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Notes may be listed,
or to conform to usage.
Notes offered and sold in reliance on Rule 144A or on
Regulation S under the Securities Act may be issued initially in the form of one
or more Global Notes in registered form, substantially in the form set forth in
Exhibit A-1, deposited with, or on behalf of, the Depository, and shall bear the
legend set forth on Exhibit B. The aggregate principal amount of any Global Note
may from time to time be increased or decreased by adjustments made on the
records of the Depository or the custodian for the Depository.
Notes offered and sold in reliance on any other exemption from
registration under the Securities Act other than as described in the preceding
paragraph shall be issued, and Notes offered and sold in reliance on Rule 144A
or on Regulation S under the Securities Act may be issued, in the form of
certificated securities in registered form in substantially the form set forth
in Exhibit A-1 (the "Certificated Notes"). The Trustee shall be conclusively
entitled to rely on the form of Notes (Global or Certificated Notes) as provided
by the Company. Likewise, the Trustee shall be conclusively entitled to rely
upon statements therein to the effect that they are being offered and sold in
reliance on Rule 144A or on Regulation S under the Securities Act, or upon
another exemption from registration under the Securities Act, as directed by the
Company.
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21
SECTION II.3 Date of Notes and denominations. The Notes shall
bear interest at the rate per annum set forth in their title, payable
semi-annually on January 15 and July 15, beginning July 15, 1999, shall mature
on January 15, 2009 and shall be issuable as registered Notes without coupons in
denominations of $1,000 and any integral multiple thereof. The person in whose
name any Note is registered at the close of business on any record date (as
defined herein) with respect to any interest payment date shall be entitled to
receive the interest payable thereon on such interest payment date
notwithstanding the cancellation of such Note upon any registration of transfer
or exchange thereof subsequent to such record date and prior to such interest
payment date (subject to the provisions of Article IV in the case of any Note or
Notes, or portion thereof, called for redemption on a date subsequent to the
record date and prior to such interest payment date and in the case of any Note
or Notes, or portion thereof, with respect to which the holder has delivered a
written acceptance of a Change in Control Offer or an Offer pursuant to Section
5.13(c) on a date subsequent to such record date). The principal of and interest
on the Notes shall be payable at the office or agency to be maintained by the
Company in accordance with the provisions of Section 5.2 for such purpose;
provided, however, that payment of interest may be made at the option of the
Company by check mailed by first class mail to the address of the person
entitled thereto as such address shall appear in the Note Register. The term
"record date" as used in this Section 2.3 with respect to any interest payment
date shall mean the close of business on January 1 or July 1, as the case may
be, next preceding such interest payment date, whether or not such January 1 or
July 1 is a Business Day.
The Notes shall be dated the date of their authentication.
Interest shall accrue on the Notes as provided in the Notes.
Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
SECTION II.4 Execution of Notes. The Notes shall be signed on
behalf of the Company, manually or in facsimile, by its Chief Executive Officer
or its President or a Vice President under its corporate seal (which may be in
facsimile) reproduced thereon and attested, manually or in facsimile, by its
Secretary or an Assistant Secretary or Treasurer or Assistant Treasurer. Only
such Notes as shall bear thereon a certificate of authentication substantially
in the form contained in Exhibits A-1 and A-2 hereto, signed manually by the
Trustee, shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee upon any Note
executed by the Company shall be conclusive evidence that the Note so
authenticated has been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture.
In case any officer of the Company whose signature appears on
any of the Notes, manually or in facsimile, shall cease to be such officer
before such Notes so signed shall have been authenticated and delivered by the
Trustee, such Notes nevertheless may be authenticated and delivered as though
the person whose signature appears on such Notes had not ceased to be such
officer of the Company; and any Note may be signed, and the corporate seal
reproduced thereon may be attested, on behalf of the Company, manually or in
facsimile, by persons as, at the actual date of the execution of such Note,
shall be the proper officers of the Company, although at the date of the
execution of this Indenture any such person was not such officer.
SECTION II.5 Registration, Registration of Transfer and
Exchange of Notes. Subject to Sections 2.11 and 2.12, Notes may be exchanged for
a like aggregate principal amount of Notes of other authorized denominations.
The Notes to be exchanged shall be surrendered at the office or agency to be
maintained by the Company in accordance with the provisions of Section 5.2, and
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor the Note or Notes which the Noteholder making the exchange
shall be entitled to receive.
<PAGE>
22
The Company shall keep or cause to be kept, at the office or
agency to be maintained by the Company in accordance with the provisions of
Section 5.2, a register or registers (the register maintained in such office and
in any other office or agency designated pursuant to Section 5.2 being herein
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall register or provide for the
registration of Notes and shall register the transfer of Notes as in this
Article II provided. The Trustee is hereby appointed "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon
surrender for registration of transfer of any Note at such office or agency
(including an exchange of Initial Notes for Exchange Notes), the Company shall
execute and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new Note or Notes for a like aggregate principal
amount; provided that no exchange of Initial Notes for Exchange Notes shall
occur until an Exchange Offer Registration Statement shall have been declared
effective by the Commission, the Trustee shall have received an Officers'
Certificate confirming that the Exchange Offer Registration Statement has been
declared effective by the Commission and the Initial Notes to be exchanged for
the Exchange Notes shall be cancelled by the Trustee.
All Notes presented or surrendered for exchange, registration
of transfer, redemption, purchase or payment shall, if so required by the
Company or the Note Registrar, be accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Company, duly executed by
the registered holder or by his duly authorized attorney and, in every case,
each Note presented or surrendered for registration of transfer shall be
accompanied by the assignment form attached to the Notes, duly executed by the
registered holder or by his duly authorized attorney.
No service charge shall be made for any exchange or
registration of transfer of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
The Company shall not be required to issue, register the
transfer of or exchange any Notes for a period of 15 days before the mailing of
a notice of redemption and ending on the date of such mailing. The Company shall
not be required to register the transfer of or exchange any Note called or being
called for redemption except, in the case of any Note to be redeemed in part,
the portion thereof not to be so redeemed. The Company shall not be required to
register the transfer of or exchange any Note in respect of which a notice
relating to a Change in Control Offer or an Offer in respect of Excess Proceeds
has been given (unless such notice has been withdrawn in accordance with
Sections 4.5 and 5.13) except, in the case of any Note to be purchased in part,
the portion thereof not to be so purchased.
<PAGE>
23
SECTION II.6 Temporary Notes. Pending the preparation of
definitive Notes, the Company may execute and the Trustee shall authenticate and
deliver temporary Notes (printed, lithographed or typewritten) of any authorized
denomination and substantially in the form of the definitive Notes, but with or
without a recital of specific redemption prices and with such omissions,
insertions and variations as may be appropriate for temporary Notes, all as may
be determined by the Board of Directors of the Company. Temporary Notes may
contain such reference to any provisions of this Indenture as may be
appropriate. Every such temporary Note shall be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with the same
effect, as the definitive Notes. Without unnecessary delay the Company will
execute and deliver to the Trustee definitive Notes and thereupon any or all
temporary Notes shall be surrendered in exchange therefor, at the office or
agency to be maintained by the Company in accordance with the provisions of
Section 5.2, and the Trustee shall authenticate and deliver in exchange for such
temporary Notes an equal aggregate principal amount of definitive Notes. Until
so exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes authenticated and delivered
hereunder.
SECTION II.7 Mutilated, destroyed, lost or stolen Notes. In
case any temporary or definitive Note shall become mutilated or be destroyed,
lost or stolen, the Company, in the case of any mutilated Note shall, and in the
case of any destroyed, lost or stolen Note in its discretion may, execute, and
upon the Company's request the Trustee shall authenticate and deliver, a new
Note bearing a number, letter or other distinguishing symbol not
contemporaneously outstanding in exchange and substitution for the mutilated
Note, or in lieu of and in substitution for the Note so destroyed, lost or
stolen, or, instead of issuing a substituted Note if any such Note shall have
matured or shall be about to mature or shall have been selected for redemption
or if the Company shall have received a notice from Holders accepting a Change
in Control Offer or an Offer in respect of Excess Proceeds in respect of any
such Note (unless such notice has been withdrawn in accordance with Section 4.5
or 5.13), the Company may pay the same without surrender thereof except in the
case of a mutilated Note. In every case the applicant for a substituted Note or
for such payment shall furnish to the Company and to the Trustee such security
or indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Note and of the ownership thereof. The
Trustee shall authenticate any such substituted Note and deliver the same, or
the Trustee or any Paying Agent of the Company shall make any such payment, upon
the written request or authorization of any officer of the Company, and shall
incur no liability to anyone by reason of anything done or omitted to be done by
it in good faith under the provisions of this Section 2.7. Upon the issue of any
substituted Note, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses connected therewith.
Every substituted Note issued pursuant to the provisions of
this Section 2.7 in substitution for any destroyed, lost or stolen Note shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Notes duly issued hereunder.
All Notes shall be held and owned upon the express condition
that the foregoing provisions are exclusive with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes, and shall preclude (to
the extent lawful) any and all other rights or remedies, notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
<PAGE>
24
SECTION II.8 Cancellation of surrendered Notes. All Notes
surrendered for the purpose of payment, redemption, purchase by the Company at
the option of the holder, exchange, substitution or registration of transfer,
shall, if surrendered to the Company or any Paying Agent or registrar, be
delivered to the Trustee and the same, together with Notes surrendered to the
Trustee for cancellation, shall be cancelled by the Trustee and no Notes shall
be issued in lieu thereof except as expressly permitted by any of the provisions
of this Indenture. The Trustee shall dispose of cancelled Notes in accordance
with its procedures for the disposition of cancelled securities in effect at the
time of such disposition, and shall deliver certificates of disposition thereof
to the Company. If the Company shall purchase or otherwise acquire any of the
Notes, however, such purchase or acquisition shall not operate as a payment,
redemption or satisfaction of the indebtedness represented by such Notes unless
and until the Company, at its option, shall deliver or surrender the same to the
Trustee for cancellation.
SECTION II.9 Defaulted Interest.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest plus, to the extent lawful, interest payable
on the defaulted interest, to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day next preceding the
date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day, in each case at the
rate provided in the Notes. The Company shall, by written notice to the Trustee,
fix each such special record date and payment date. At least 15 days before the
special record date, the Company (or the Trustee, in the name of and at the
expense of the Company) shall mail to each Holder, with a copy to the Trustee, a
notice that states the subsequent special record date, the payment date and the
amount of defaulted interest, and interest payable on such defaulted interest,
if any, to be paid.
SECTION II.10 CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes.
SECTION II.11 Book-Entry Provisions for Global Note.
(a) One or more Global Notes initially shall (i) be registered
in the name of the Depository or the nominee of such Depository, (ii) be
delivered to the Trustee as custodian for such Depository and (iii) bear legends
contained in Exhibit B.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Note, and the Depository may be treated by the Company, the
Trustee, the Paying Agent and the Note Registrar and any agent of the same as
the absolute owner and Holder of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee, the Paying Agent and the Note Registrar or any agent of the same from
giving effect to any written certification, proxy or other authorization
furnished by the Depository or impair, as between the Depository and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a Holder of any Note.
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25
(b) Transfers of the Global Note shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
or exchanged for Certificated Notes in accordance with the rules and procedures
of the Depository and the provisions of Section 2.12. In addition, Certificated
Notes shall be transferred to all beneficial owners in exchange for their
beneficial interests in the Global Note if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for the Global
Note and a successor depository is not appointed by the Company within 90 days
of such notice or (ii) an Event of Default has occurred and is continuing and
the Note Registrar has received a request from the Depository to issue
Certificated Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Note Registrar shall (if one or more Certificated Notes are
to be issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute and the Trustee shall authenticate and deliver, one or more
Certificated Notes of like tenor and amount.
(d) In connection with the transfer of the Global Note as an
entirety to beneficial owners pursuant to paragraph (b), the Global Note shall
be deemed to be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Note, an equal aggregate principal amount of Certificated
Notes of authorized denominations.
(e) Any Certificated Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph (b)
or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (z) of
Section 2.12, bear the legend regarding transfer restrictions applicable to the
Certificated Notes set forth in Exhibit A-1.
(f) The Holder of any Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION II.12 Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration of any
proposed transfer of a Note constituting a Restricted Security to any
Institutional Accredited Investor which is not a QIB:
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26
(i) the Note Registrar shall register the transfer of any
Note constituting a Restricted Security, whether or not such Note bears
the Private Placement Legend, if (x) the requested transfer is after
the date which is two years after the initial issuance of the Initial
Notes, (y) in the case of a transfer to an Institutional Accredited
Investor which is not a QIB (excluding Non-U.S. Persons), the proposed
transferee has delivered to the Note Registrar a certificate
substantially in the form of Exhibit C hereto or (z) the Trustee and
Note Registrar have received both an Opinion of Counsel and an
Officers' Certificate directing transfer without a Private Placement
Legend; and
(ii) if the proposed transferor is an Agent Member holding
a beneficial interest in a Global Note, upon receipt by the Note
Registrar of (x) the certificate, if any, required by paragraph (i)
above and (y) instructions given in accordance with the Depository's
and the Note Registrar's procedures,
whereupon (a) the Note Registrar shall reflect on its books and records the date
and (if the transfer does not involve a transfer of outstanding Certificated
Notes) a decrease in the principal amount of a Global Note in an amount equal to
the principal amount of the beneficial interest in a Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate upon receipt of a written order of the Company signed by its Chief
Executive Officer, President or a Vice President and deliver one or more
Certificated Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to a QIB:
(i) the Note Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Note Registrar in writing, that the sale has been made
in compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or
has otherwise advised the Company and the Note Registrar in writing,
that it is purchasing the Note for its own account or an account with
respect to which it exercises sole investment discretion and that it
and any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Certificated Notes which after
transfer are to be evidenced by an interest in the Global Note, upon
receipt by the Note Registrar of instructions given in accordance with
the Depository's and the Note Registrar's procedures, the Note
Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Note in an amount equal
to the principal amount of the Certificated Notes to be transferred,
and the Trustee shall cancel the Certificated Notes so transferred.
(c) Transfers pursuant to Regulation S. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Note constituting a Restricted Security outside the United States in an
offshore transaction within the meaning of Regulation S:
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27
(i) the Note Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Note Registrar in writing, that the sale has been made
in compliance with the provisions of Regulation S to a transferee who
has advised the Company and the Note Registrar in writing, that it is
purchasing the Note outside of the United State in an offshore
transaction within the meaning of Regulation S in compliance with Rule
904 of the Securities Act, and is aware that the transferor is relying
upon its foregoing representations in order to claim the exemption from
registration provided by Regulation S; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Certificated Notes which after
transfer are to be evidenced by an interest in the Global Note, upon
receipt by the Note Registrar of instructions given in accordance with
the Depository's and the Note Registrar's procedures, the Note
Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Note in an amount equal
to the principal amount of the Certificated Notes to be transferred,
and the Trustee shall cancel the Certificated Notes so transferred.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless (i) the circumstances contemplated by paragraph
(a)(i)(x) of this Section 2.12 exist, (ii) there is delivered to the Note
Registrar and the Trustee an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) such Note has been sold pursuant to an
effective registration statement under the Securities Act.
(e) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Note Registrar shall retain copies of all letters, notices
and other written communications received by it pursuant to Section 2.11 or this
Section 2.12. The Company shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Note Registrar.
The Trustee shall be entitled to obtain and conclusively rely
upon, in connection with any transfer of a Note, an opinion of counsel opining
as to whether such Note is a Restricted Security, and whether the transferee is
an Institutional Accredited Investor or a QIB or not a AU.S. person@ within the
meaning of Regulation S.
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ARTICLE III
SUBORDINATION OF NOTES
SECTION III.1 Agreement to subordinate. The Company, for
itself, its successors and assigns, covenants and agrees, and each holder of
Notes, by his or her acceptance thereof, likewise covenants and agrees, that the
payment of the principal of and premium, if any, and interest on each and all of
the Notes is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full, in cash
or Cash Equivalents of all Senior Indebtedness. This Article III constitutes a
continuing offer to all persons or entities who become holders of, or continue
to hold, Senior Indebtedness, each of whom is an obligee hereunder and is
entitled to enforce such holder's rights hereunder, subject to the provisions
hereof, without any act or notice of acceptance hereof or reliance hereon.
For the purposes of this Article III, (a) no Senior
Indebtedness shall be deemed to have been paid in full unless and until all
commitments or other obligations of the lenders thereunder to make advances or
otherwise extend credit shall have terminated and the holders thereof shall have
indefeasibly received payment in full in cash or Cash Equivalents, and (b) the
term "Senior Representative" shall mean the indenture trustee or other trustee,
agent or representative for any Senior Indebtedness.
SECTION III.2 Distribution on dissolution, liquidation,
bankruptcy or reorganization. Upon any distribution of assets of the Company
upon any total or partial dissolution, winding up, liquidation or reorganization
of the Company, whether in bankruptcy, insolvency, reorganization or
receivership proceedings or upon an assignment for the benefit of creditors or
any other marshalling of the assets and liabilities of the Company or otherwise,
(a) The holders of Senior Indebtedness shall be entitled to
receive payment in full in cash or Cash Equivalents or, as acceptable to each
holder of Senior Indebtedness, in any other manner, of all amounts due on or in
respect of all Senior Indebtedness before the Holders of the Notes are entitled
to receive any payment or distribution of any kind or character (excluding
securities of the Company provided for in a plan of reorganization with respect
to the Company approved by the bankruptcy court that are equity securities or
are subordinated in right of payment to all Senior Indebtedness to the same
extent as, or to a greater extent than, the Notes are so subordinated as
provided in this Article; such securities are hereinafter collectively referred
to as "Permitted Junior Notes") on account of principal of, premium, if any, or
interest on the Notes (including any payment or other distribution which may be
received from the holders of Subordinated Indebtedness as a result of any
payment on such Subordinated Indebtedness); and
<PAGE>
29
(b) any payment or distribution of assets of the Company or
any Subsidiary of any kind or character, whether in cash, property or securities
(excluding Permitted Junior Notes), by set-off or otherwise, to which the
Holders or the Trustee would be entitled but for the provisions of this Article
(including any payment or other distribution which may be received from the
holders of Subordinated Indebtedness as a result of any payment on such
Subordinated Indebtedness) shall be paid by the liquidating trustee or agent or
other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or their Senior Representative or
Representatives, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full in cash, Cash Equivalents or in any other form
acceptable to each, of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any Notes shall have
received any payment or distribution of assets of the Company or any Subsidiary
of any kind or character, whether in cash, property or securities (excluding
Permitted Junior Notes), in respect of principal, premium, if any, and interest
on the Notes before all Senior Indebtedness is paid in full, then and in such
event, such payment or distribution (including any payment or other distribution
which may be received from the holders of Subordinated Indebtedness as a result
of any payment on such Subordinated Indebtedness) shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, Cash Equivalents or, as acceptable to each holder of Senior
Indebtedness, any other manner, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness or deposited with a
court of competent jurisdiction.
The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the sale or conveyance of its property or assets as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article XII shall not be deemed a dissolution,
winding up, liquidation or reorganization of the Company for the purposes of
this Article III if such other corporation shall, as a part of such
consolidation, merger, sale or conveyance, comply with the conditions stated in
Article XII.
If the Trustee or any holder of Notes does not file a proper
claim or proof of debt in the form required in any proceeding referred to above
prior to 30 days before the expiration of the time to file such claim in such
proceeding, then the holder of any Senior Indebtedness (or its Representative)
is hereby authorized, and has the right, to file an appropriate claim or claims
for or on behalf of such holder of Notes.
SECTION III.3 Suspension of Payment When Senior Indebtedness
in Default.
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30
(a) Unless Section 3.2 shall be applicable, upon the
occurrence of a Payment Default, then no payment (other than any payments made
pursuant to Section 13.1 which have been deposited with the Trustee for at least
124 days) or distribution of any assets of the Company or any Subsidiary of any
kind or character (excluding Permitted Junior Notes) shall be made by the
Company or any Subsidiary or on behalf of or out of the property of the Company,
or received by the Trustee or any Noteholder on account of principal of,
premium, if any, or interest on, the Notes or on account of the purchase,
redemption, defeasance (whether under Section 13.1(b) or 13.1(c)) or other
acquisition of or in respect of the Notes unless and until such Payment Default
shall have been cured or waived in writing by the holders of the Designated
Senior Indebtedness or shall have ceased to exist or the Designated Senior
Indebtedness shall have been paid in full in cash, Cash Equivalents or in any
other manner as acceptable to each holder of such Senior Indebtedness, after
which the Company shall resume making any and all required payments in respect
of the Notes, including any missed payments.
(b) Unless Section 3.2 shall be applicable, upon (i) the
occurrence of a Non-payment Default and (ii) receipt by the Trustee and the
Company from a Senior Representative or the holder of any Designated Senior
Indebtedness of written notice of such occurrence, no payment (other than any
payments made pursuant to Section 13.1 which have been deposited with the
Trustee for at least 124 days) or distribution of any assets of the Company or
any Subsidiary of any kind or character (excluding Permitted Junior Notes) shall
be made by the Company or any Subsidiary or on behalf of or out of the property
of the Company, or received by the Trustee or any Noteholder on account of any
principal of, premium, if any, or interest on, the Notes or on account of the
purchase, redemption, defeasance (whether under Section 13.1(b) or 13.1(c)) or
other acquisition of or in respect of Notes for a period ("Payment Blockage
Period") commencing on the date of receipt by the Trustee of such notice unless
and until the earliest of (subject to any blockage of payments that may then or
thereafter be in effect under subsection (a) of this Section 3.3) (x) 179 days
after receipt of such written notice by the Trustee (provided any Designated
Senior Indebtedness as to which notice was given shall theretofore have not been
accelerated), (y) the date such Non-payment Default and all other Non-payment
Defaults as to which notice is also given after such period is initiated shall
have been cured or waived in writing by the holders of the Designated Senior
Indebtedness or shall have ceased to exist or the Senior Indebtedness related
thereto shall have been paid in full in cash or Cash Equivalents or (z) the date
such Payment Blockage Period and any Payment Blockage Periods initiated during
such period shall have been terminated by written notice to the Company or the
Trustee from the Senior Representative and the holders of the Designated Senior
Indebtedness that have given notice of a Non-payment Default at or after the
initiation of such Payment Blockage Period, after which in the case of clause
(x), (y) or (z), the Company shall resume making any and all required payments
in respect of the Notes including any missed payments. Notwithstanding any other
provision of this Indenture, in no event shall a Payment Blockage Period extend
beyond 179 days from the date of the receipt by the Company or the Trustee of
the notice referred to in clause (ii) of this paragraph (b) (the "Initial
Blockage Period"). Any number of notices of Non-payment Default may be given
during the Initial Blockage Period; provided that during any 365-day consecutive
period only one such period during which payment of principal of, or interest
on, the Notes may not be made may commence and the duration of such period may
not exceed 179 days. No Non-payment Default with respect to Designated Senior
Indebtedness which existed or was continuing on the date of the commencement of
any Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 365 consecutive days, unless such default shall have been cured or waived for
a period of not less than 90 consecutive days.
<PAGE>
31
(c) In the event that, notwithstanding the foregoing, the
Company or any Subsidiary shall make, or the Trustee or any Noteholder shall
receive, any payment to the Trustee or the Holder of any Notes prohibited by the
foregoing provisions of this Section, then and in such event such payment shall
be paid over and delivered forthwith to a Senior Representative of the holders
of the Designated Senior Indebtedness or as a court of competent jurisdiction
shall direct.
SECTION III.4 Payment Permitted if No Default. Nothing
contained in this Article, elsewhere in this Indenture or in any of the Notes
shall prevent the Company, at any time except during the pendency of any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 3.2 or under the conditions described in Section
3.3, from making payments at any time of principal of, premium, if any, or
interest on the Notes.
SECTION III.5 Subrogation to Rights of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, the
Holders of the Notes shall be subrogated to the rights of the holders of such
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Notes shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article to the
holders of Senior Indebtedness by Holders of the Notes or the Trustee, shall, as
among the Company, its creditors other than holders of Senior Indebtedness, and
the Holders of the Notes, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
SECTION III.6 Provisions Solely to Define Relative Rights. The
provisions of this Article are intended solely for the purpose of defining the
relative rights of the Holders of the Notes on the one hand and the holders of
Senior Indebtedness on the other hand. Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall (i) impair,
as among the Company, its creditors other than holders of Senior Indebtedness
and the Holders of the Notes, the obligation of the Company, which is absolute
and unconditional, to pay to the Holders of the Notes the principal of, premium,
if any, and interest on the Notes as and when the same shall become due and
payable in accordance with their terms; or (ii) affect the relative rights
against the Company of the Holders of the Notes and creditors of the Company
other than the holders of Senior Indebtedness; or (iii) prevent the Trustee or
the Holder of any Note from exercising all remedies otherwise permitted by
applicable law upon Default under this Indenture, subject to the rights, if any,
under this Article of the holders of Senior Indebtedness (A) in any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Company referred to in Section 3.2, to receive, pursuant to and in accordance
with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (B) under the conditions specified
in Section 3.3, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 3.3(c).
<PAGE>
32
SECTION III.7 Trustee to Effectuate Subordination.
Each Holder of a Note by his or her acceptance thereof
authorizes and directs the Trustee on his or her behalf to take such action as
may be necessary or appropriate to effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of the Company whether in bankruptcy, insolvency,
receivership proceedings, or otherwise, the timely filing of a claim for the
unpaid balance of the indebtedness of Company owing to such Holder in the form
required in such proceedings and the causing of such claim to be approved. If
the Trustee does not file a proper claim at least 30 days before the expiration
of the time to file such claim, then the holders of Senior Indebtedness, and
their agents, trustees or other representatives are authorized to do so for and
on behalf of the Holders of the Notes.
SECTION III.8 No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Notes to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, or
waive compliance with the terms of, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection or payment of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person; provided, however, that in no event shall any
such actions limit the right of the Holders of the Notes to take any action to
accelerate the maturity of the Notes pursuant to Article VII of this Indenture
or to pursue any rights or remedies hereunder or under applicable laws if the
taking of such action does not otherwise violate the terms of this Article,
subject to the rights, if any, under this Article, of the holders, from time to
time, of Senior Indebtedness to receive the cash, property or securities
receivable upon the exercise of such rights or remedies.
<PAGE>
33
SECTION III.9 Notice to Trustee. (a) The Company shall give
prompt written notice to the Trustee of any fact known to the Company which
would prohibit the making of any payment to or by the Trustee in respect of the
Notes. Notwithstanding the provisions of this Article or any provision of this
Indenture, the Trustee or any Paying Agent shall not be charged with knowledge
of the existence of any facts which would prohibit the making of any payment to
or by the Trustee or any Paying Agent in respect of the Notes, unless and until
the Trustee shall have received written notice thereof from the Company or a
holder of Senior Indebtedness or from a Senior Representative or any trustee,
fiduciary or agent therefor; and, prior to the receipt of any such written
notice, the Trustee shall be entitled in all respects to assume that no such
facts exist; provided, however, that if the Trustee shall not have received the
notice provided for in this Section at least three Business Days prior to the
date upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of, premium, if
any, or interest on any Note), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of the holders of
Senior Indebtedness or any trustee, fiduciary or agent thereof, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within three Business
Days prior to such date; nor shall the Trustee be charged with knowledge of the
elimination of the act or condition preventing any such payment unless and until
the Trustee shall have received an Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to
it of a written notice to the Trustee and the Company by a Person representing
himself to be a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor) to establish that such notice has been
given by a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent thereof and the Trustee shall have no duty to
investigate the authenticity thereof or the authority of the person signing and
shall have no liability for relying thereon); provided, however, that failure to
give such notice to the Company shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment or
the Trustee or the Paying Agent may deposit the funds in question with a court
of competent jurisdiction.
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34
SECTION III.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee and the Holders of the Notes shall be
entitled to conclusively rely upon any order or decree entered by any court of
competent jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other person making such payment or distribution, delivered to the Trustee or to
the Holders of Notes, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount of amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article, provided that the foregoing shall apply only if such
court has been fully apprised of the provisions of this Article.
SECTION III.11 Rights of Trustee as a Holder of Senior
Indebtedness; Preservation of Trustee's Rights. The trustee in its individual
capacity shall be entitled to all the rights set forth in this Article with
respect to any Senior Indebtedness which may at any time be held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder. Nothing
in this Article shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 8.6.
SECTION III.12 Article Applicable to Paying Agents. In case at
any time any Paying Agent other than the Trustee shall have been appointed by
the Company and be then acting under this Indenture, the term "Trustee" as used
in this Article shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however, that
Section 3.11 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as Paying Agent.
SECTION III.13 No Suspension of Remedies. Nothing contained in
this Article shall limit the right of the Trustee or the Holders of Notes to
take any action to accelerate the maturity of the Notes pursuant to Article VII
of this Indenture or to pursue any rights or remedies hereunder or under
applicable law, subject to the rights, if any, under this Article of the
holders, from time to time, of Senior Indebtedness to receive the cash, property
or securities receivable upon the exercise of such rights or remedies.
SECTION III.14 Trustee's Relation to Senior Indebtedness. With
respect to the holders of Senior Indebtedness, the Trustee undertakes to perform
or to observe only such of its covenants and obligations as are specifically set
forth in this Article, and no implied covenants or obligations with respect to
the holders of Senior Indebtedness shall be read into this Article against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and the Trustee shall not be liable to any holder
of Senior Indebtedness if it shall, without gross negligence or willful
misconduct, pay over or deliver to Holders, the Company or any other Person
(other than a court of competent jurisdiction) moneys or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise.
SECTION III.15 Other Rights of Holders of Senior Indebtedness.
All rights and interests under this Indenture of the holders of Senior
Indebtedness, and all agreements and obligations of the Trustee, the Holders of
the Notes and the Company under this Article shall remain in full force and
effect irrespective of (i) any lack of validity or enforceability of the Credit
Facility, and promissory notes evidencing the Credit Facility or any other
agreement or instrument relating thereto or to any other Senior Indebtedness or
(ii) any other circumstance that might constitute a defense available to, or a
discharge of, a guarantor or surety (other than as a result of any payments
indefeasibly made on the Credit Facility or any other Senior Indebtedness).
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The holders of Senior Indebtedness are hereby authorized to
demand specific performance of this Article, whether or not the Company shall
have complied with any provisions of this Article applicable to it, at any time
when the Trustee or any Holder of the Notes shall have failed to comply with any
of these provisions.
The provisions of this Article shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any of the
Senior Indebtedness is rescinded or must otherwise be returned by any holder of
Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, all as though such payment had not been made.
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ARTICLE IV
REDEMPTION AND PURCHASES OF NOTES
SECTION IV.1 Redemption Prices. On or after January 15, 2004
the Company may, at its option, redeem at any time all or from time to time any
part of the Notes, on any date prior to maturity at the redemption prices and
subject to the conditions specified in the Notes, together with interest accrued
and unpaid thereon to the date fixed for redemption at the following redemption
prices (expressed as a percentage of the principal amount) if redeemed during
the 12-month period beginning January 15 of the years indicated below:
Redemption
Year Price
---- ----------
2004 ............................................... 104.937%
2005 ............................................... 102.468%
2006 ............................................... 101.234%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date.
In addition, at any time prior to January 15, 2002, the
Company, at its option, may use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Notes originally issued under the Indenture at a redemption price equal to
109.875% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the initial aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
30 days after the closing of the related Public Equity Offering and must
consummate such redemption within 60 days of the closing of the Public Equity
Offering.
SECTION IV.2 Notice of Redemption; Selection of Notes. In case
the Company shall desire to exercise such right to redeem all or, as the case
may be, any part of the Notes in accordance with the right reserved so to do,
the Company, or at the Company's written request, the Trustee in the name and at
the expense of the Company, shall give notice of such redemption to holders of
the Notes to be redeemed as hereinafter in this Section 4.2 provided.
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Notice of redemption shall be given to the holders of Notes to
be redeemed as a whole or in part by mailing by first-class mail a notice of
such redemption not less than 30 nor more than 60 days prior to the date fixed
for redemption to their last addresses as they shall appear in the Note
Register, but failure to give such notice by mailing to the holder of any Note
designated for redemption as a whole or in part, or any defect therein, shall
not affect the validity of the proceedings for the redemption of any other
Notes.
Any notice which is mailed in the manner herein provided shall
be conclusively presumed to have been duly given, whether or not the holder
receives the notice.
Each such notice of redemption shall state the CUSIP number of
the Notes to be redeemed and shall specify the total principal amount to be
redeemed, the date fixed for redemption and the redemption price at which Notes
are to be redeemed, and shall state that payment of the redemption price of the
Notes to be redeemed will be made at the office or agency to be maintained by
the Company in accordance with the provisions of Section 5.2, upon presentation
and surrender of such Notes, that interest accrued to the date fixed for
redemption will be paid as specified in said notice, and that on and after said
date interest thereon will cease to accrue. If less than all the Notes are to be
redeemed, the notice of redemption to each holder shall state the aggregate
principal amount of the Notes to be redeemed and shall identify the Notes of
such holders to be redeemed. In case any Note is to be redeemed in part only,
the notice which relates to such Note shall state the portion of the principal
amount thereof to be redeemed (which shall be $1,000 or an integral multiple
thereof), and shall state that on and after the date fixed for redemption, upon
surrender of such Note, the holder will receive the redemption price together
with accrued interest in respect of the principal amount thereof called for
redemption and, without charge, a new Note or Notes of authorized denominations
for the principal amount thereof remaining unredeemed.
On or prior to the date fixed for redemption specified in the
notice of redemption given as provided in this Section 4.2, the Company will
deposit with the Trustee or with one or more Paying Agents (or, if the Company
is acting as its own Paying Agent, set aside, segregate and hold in trust as
provided in Section 5.4(c)) immediately available funds sufficient to redeem on
the date fixed for redemption all the Notes or portions of Notes so called for
redemption at the appropriate redemption price, together with accrued interest
to the date fixed for redemption.
The Company shall give the Trustee, not less than 45 nor more
than 60 days (or such shorter period acceptable to the Trustee) in advance of
the date fixed for redemption, notice of the aggregate principal amount of Notes
to be redeemed, and thereupon the Trustee shall select the Notes or portions
thereof to be redeemed by lot or such other method as the Trustee shall deem
fair and appropriate and shall thereafter promptly notify the Company of the
Notes or portions thereof to be redeemed.
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SECTION IV.3 When Notes called for redemption become due and
payable. If the giving of notice of redemption shall have been completed as
above provided, the Notes or portions of Notes specified in such notice (and not
theretofore purchased pursuant to Sections 4.5 and 5.13) shall become due and
payable on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued to the date fixed for
redemption, and on and after such date fixed for redemption (unless the Company
shall default in the payment of such Notes at the redemption price, together
with interest accrued to the date fixed for redemption) interest on the Notes or
portions of Notes so called for redemption shall cease to accrue. On
presentation and surrender of such Notes at said place of payment in said notice
specified, on or after the date fixed for redemption the said Notes shall be
paid and redeemed by the Company at the applicable redemption price, together
with interest accrued to the date fixed for redemption. Upon presentation of any
Note which is redeemed in part only, the Company shall execute and register and
the Trustee shall authenticate and deliver at the expense of the Company, a new
Note or Notes in principal amount equal to the unredeemed portion of the Note so
presented.
SECTION IV.4 Cancellation of Redeemed Notes. All Notes
surrendered to the Trustee, upon redemption pursuant to the provisions of this
Article IV, shall be forthwith cancelled by it.
SECTION IV.5 Purchase of Notes Upon Change in Control.
(a) Upon the occurrence of a Change in Control, each Holder
shall have the right to require that the Company repurchase such Holder's Notes
pursuant to an offer described in subsection (c) of this Section (a "Change in
Control Offer") in whole or in part in integral multiples of $1,000, at a
purchase price (the "Change in Control Purchase Price") in cash in an amount
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase, in accordance with the procedures set forth in
Subsections (b), (c), (d) and (e) of this Section.
(b) Within 30 days following a Change in Control and prior to
the mailing of the notice relating to the Change in Control Offer to Holders
provided for in paragraph (c) below, the Company covenants to (i) notify the
lenders under the Credit Facility that a Change in Control has occurred and (ii)
either (1) repay in full all Indebtedness under the Credit Facility and
permanently reduce to zero the commitments of the lenders thereunder or offer to
repay in full all such Indebtedness and permanently reduce such commitments and
repay the Indebtedness and permanently reduce to zero the commitment of each
lender who has accepted such offer or (2) obtain the requisite consent under the
Credit Facility to permit the repurchase of the Notes as provided for in this
Section 4.5. The Company shall first comply with this subsection (b) before it
shall be required to repurchase the Notes pursuant to this Section 4.5, and any
failure to comply with this subsection (b) shall constitute a Default of this
covenant for purposes of Section 7.1(c)(iv).
(c) Within 30 days following any Change in Control, the
Company shall send by first-class mail, postage prepaid, to the Trustee and to
each Holder of the Notes, at his address appearing in the Note Register, a
notice specifying, among other things:
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39
(1) that a Change in Control has occurred, the date of such
event, and that such Holder has the right to require the Company to
repurchase such Holder's Notes in whole or in part at the Change in
Control Purchase Price in cash;
(2) the circumstances and relevant facts regarding such Change
in Control (including but not limited to information with respect to
pro forma historical income, cash flow and capitalization after giving
effect to such Change in Control, if any);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report (or in the event the Company is not
required to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company and any Guarantor
pursuant to Section 5.18), (ii) a description of material developments
in the Company's business subsequent to the date of the latest of such
reports and (iii) such other information, if any, concerning the
business of the Company which the Company in good faith believes will
enable such Holders to make an informed investment decision;
(4) that the Change in Control Offer is being made pursuant to
this Section 4.5 and that all Notes properly tendered pursuant to such
Change in Control Offer will be accepted for payment at the Change in
Control Offer Purchase Price;
(5) the purchase date (the "Change in Control Purchase Date")
which shall be a Business Day no earlier than 30 days nor later than 60
days from the date such notice is mailed;
(6) the Change in Control Purchase Price;
(7) that the tender is revocable and instructions determined
by the Company that a Holder must follow in order to have Notes
purchased (including, but not limited to, the place at which Notes
shall be presented and surrendered for purchase) and materials
necessary to comply with applicable tender rules;
(8) that the Change in Control Purchase Price for any Note
which has been properly tendered and not withdrawn will be paid
promptly following the Change in Control Offer Purchase Date; and
(9) the procedures for withdrawing a tender.
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(d) Upon receipt by the Company of the proper tender of Notes
the Holder of the Note in respect of which such proper tender was made shall
(unless the tender of such Note is properly withdrawn) thereafter be entitled to
receive solely the Change in Control Purchase Price with respect to such Note.
Upon surrender of any such Note for purchase in accordance with the foregoing
provisions, such Note shall be paid by the Company at the Change in Control
Purchase Price; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Change in Control Purchase Date shall be payable
to the Holders of such Notes, registered as such on the record dates according
to the terms and the provisions of Section 2.3. If any Note tendered for
purchase shall not be so paid upon surrender thereof, the principal thereof (and
premium, if any, thereon) shall, until paid, bear interest from the Change in
Control Purchase Date at the rate borne by such Note. Holders electing to have
Notes purchased will be required to give notice and surrender such Notes to the
Company at the address specified in the Company's aforementioned notice at least
two Business Days prior to the Change in Control Purchase Date. Any Note that is
to be purchased only in part shall be surrendered to the Company or its agent at
the address specified in the Company's aforementioned notice (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereto or such Holder's attorney duly authorized in writing),
and the Company shall execute and the Trustee shall authenticate and deliver to
the Holder of such Note, without service charge, one or more new Notes of any
authorized denominations as requested by such Holder in an aggregate principal
amount equal to, and in exchange for, the portion of the principal amount of the
Note so surrendered that is not purchased.
(e) Not later than the Change in Control Purchase Date, the
Company shall (i) accept for payment Notes or portions thereof tendered pursuant
to the Change in Control Offer, (ii) in the event the Company is not acting as
its own Paying Agent, no later than 11 a.m. (New York time) on the Business Day
prior to the Change in Control Purchase Date, deposit with the Paying Agent an
amount of cash sufficient to pay the aggregate Change in Control Purchase Price
of all the Notes or portions thereof that are to be purchased as of the Change
in Control Purchase Date and (iii) deliver to the Paying Agent an Officers'
Certificate stating the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail or deliver to Holders of Notes so
accepted payment in an amount equal to the Change in Control Purchase Price of
the Notes purchased from each such Holder, and the Company shall execute and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted shall be promptly mailed or delivered by
the Paying Agent at the Company's expense to the Holder thereof. The Company
will publicly announce the results of the Change in Control Offer on the Change
in Control Purchase Date. For purposes of this Section 4.5, the Company shall
choose a Paying Agent which shall not be the Company.
(f) Any acceptances by Holders of the Change in Control Offer
may be withdrawn before or after delivery of Notes by the Holder to the Company,
by means of a written notice of withdrawal delivered by the Holder to the
Company or its agent at the address specified in the Company's aforementioned
notice at any time prior to the close of business on two Business Days prior to
the Change in Control Purchase Date specifying, as applicable:
(1) the certificate number of the Note in respect of which
such notice of withdrawal is being submitted,
(2) the principal amount of the Note (which shall be $1,000 or
an integral multiple thereof) with respect to which such notice of
withdrawal is being submitted, and
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41
(3) the principal amount, if any, of such Note (which shall be
$1,000 or an integral multiple thereof) that remains subject to the
Change in Control Offer and that has been or will be delivered to the
Company or its agent for purchase by the Company.
(g) The Trustee and the Paying Agent shall return to the
Company any cash that remains unclaimed, together with interest or dividends, if
any, thereon, held by them for the payment of the Change in Control Purchase
Price; provided, however, that, to the extent that the aggregate amount of cash
deposited by the Company pursuant to clause (e)(ii) exceeds the aggregate Change
in Control Purchase Price of the Notes or portions thereof to be purchased, then
the Trustee shall hold such excess for the Company and promptly after the
Business Day following the Change in Control Purchase Date the Trustee shall
upon demand return any such excess to the Company together with interest or
dividends, if any, thereon.
(h) The Company shall comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, in connection with a Change
in Control Offer.
ARTICLE V
COVENANTS
SECTION V.1 Payment of principal of and premium, if any, and
interest on Notes. The Company will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on the Notes at the time and
place and in the manner provided in the Notes and this Indenture.
SECTION V.2 Maintenance of office or agency for registration
of transfer, exchange and payment of Notes. So long as any of the Notes shall
remain outstanding, the Company will maintain an office or agency in the Borough
of Manhattan, The City of New York, State of New York, where the Notes may be
surrendered for exchange or registration of transfer as in this Indenture
provided, and where notices and demands to or upon the Company in respect to the
Notes may be served, and where the Notes may be presented or surrendered for
payment. The Company may also from time to time designate one or more other
offices or agencies where Notes may be presented or surrendered for any and all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, State of New York for such purposes. The
Company will give to the Trustee prompt written notice of the location of any
such office or agency and of any change of location thereof. The Company
initially appoints the Trustee its office or agency for each of said purposes.
In case the Company shall fail to maintain any such office or agency or shall
fail to give such notice of the location or of any change in the location
thereof, such surrenders, presentations and demands may be made and notices may
be served at the office of the Trustee set forth in Section 15.3, and the
Company hereby appoints the Trustee its agent to receive at the aforesaid office
all such surrenders, presentations, notices and demands. The Trustee will give
the Company prompt notice of any change in location of the Trustee's principal
corporate trust office.
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42
SECTION V.3 Appointment to fill a vacancy in the office of
Trustee. The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 8.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION V.4 Provision as to Paying Agent. (a) If the Company
shall appoint a paying agent other than the Trustee, it will cause such Paying
Agent to execute and deliver to the Trustee an instrument in which such agent
shall undertake, subject to the provisions of this Section 5.4,
(i) that it will hold all sums held by it as such agent for
the payment of the principal of, premium, if any, or interest on the
Notes whether such sums have been paid to it by the Company (or by any
other obligor on the Notes) in trust for the benefit of the holders of
the Notes and will notify the Trustee of the receipt of sums to be so
held,
(ii) that it will give the Trustee notice of any failure by
the Company (or by any other obligor on the Notes) to make any payment
of the principal of, premium, if any, or interest on the Notes when the
same shall be due and payable,
(iii) that it will at any time during the continuance of any
Event of Default specified in subsection (a) or (b) of Section 7.1,
upon the written request of the Trustee, deliver to the Trustee all
sums so held in trust by it, and
(iv) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights
and liabilities of such Paying Agent, including, without limitation,
the provision of Article III hereof.
(b) If the Company shall not act as its own Paying Agent, it
will, by 11 a.m. on the Business Day prior to each due date of the principal of
or premium, if any, or interest on any Notes, deposit with such Paying Agent a
sum in same day funds sufficient to pay the principal of, premium, if any, or
interest so becoming due, such sum to be held in trust for the benefit of the
holders of Notes entitled to such principal of or premium, if any, or interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its failure so to act.
(c) If the Company shall act as its own Paying Agent, it will,
on or before each due date of the principal of or premium, if any, or interest
on the Notes, set aside, segregate and hold in trust for the benefit of the
persons entitled thereto, a sum sufficient to pay such principal or premium or
interest so becoming due and will notify the Trustee of any failure to take such
action.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by it, or any Paying
Agent hereunder, as required by this Section 5.4, such sums to be held by the
Trustee upon the trusts herein contained.
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43
(ei Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
5.4 is subject to the provisions of Sections 13.6 and 13.7.
SECTION V.5 Maintenance of Corporate Existence. So long as any
of the Notes shall remain outstanding, the Company will at all times (except as
otherwise provided or permitted in this Section 5.5 or elsewhere in this
Indenture) do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and franchises and the corporate
existence and franchises of each Subsidiary; provided that nothing herein shall
require the Company to continue the corporate existence or franchises of any
Subsidiary if in the judgment of the Company it shall be necessary, advisable or
in the interest of the Company to discontinue the same.
SECTION V.6 Payment of Taxes and Other Claims. The Company
will pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, the failure to pay or discharge of
which would have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and its Subsidiaries
taken as one enterprise; provided, however, that the Company shall not be
required to pay or cause to be paid or discharged any such tax, assessment or
governmental charge whose amount, applicability or validity is being contested
in good faith by appropriate proceedings properly instituted and diligently
conducted and in respect of which appropriate reserves (in the good faith
judgment of management of the Company) are being maintained in accordance with
GAAP consistently applied.
SECTION V.7 Maintenance of Properties. The Company will cause
all properties owned or leased by the Company or any Subsidiary or used or held
for use in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition and repair as in the judgment of the
Company may be necessary so that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from (i) discontinuing the use, operation or
maintenance of any of such properties if such discontinuance is, in the judgment
of the Board of Directors of the Company or the Subsidiary concerned, or of any
officer (or other agent employed by the Company or any Subsidiary) having
managerial responsibility for such property, desirable in the conduct of its
business or the business of any Subsidiary or (ii) selling any properties;
provided that the proceeds of such sale shall be applied in accordance with
Section 5.13, if applicable.
SECTION V.8 Insurance. The Company shall provide or cause to
be provided for itself and any Subsidiaries of the Company insurance (including
appropriate self-insurance) with insurers, believed by the Company to be
responsible, against loss or damage of the kinds customarily insured against by
Persons similarly situated and owning like properties in the same general areas
in which the Company or such Subsidiaries operate, unless such failure to
provide or cause to be provided such insurance would not have a material adverse
effect on the condition (financial or otherwise), earnings or business affairs
of the Company and its Subsidiaries taken as one enterprise.
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44
SECTION V.9 Limitation on Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, create, incur, assume, or
directly or indirectly guarantee or in any other manner become directly or
indirectly liable for the payment of, any Indebtedness (including any Acquired
Indebtedness but excluding Permitted Indebtedness) unless at the time of such
event and after giving effect thereto on a pro forma basis the Company's Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
such event, taken as one period, calculated on the assumption that (i) such
Indebtedness had been incurred on the first day of such four-quarter period and
(ii) any acquisition or disposition by the Company and its Subsidiaries of any
assets out of the ordinary course of business, or any company or business
facility, in each case since the first day of its last four completed fiscal
quarters, had been consummated on such first day of such four-quarter period,
would have been at least 2.00 to 1.00.
For purposes of determining compliance with this covenant, in
the event that an item of proposed Indebtedness meets the criteria of more than
one of the categories described in clauses (a) through (l) of the definition of
Permitted Indebtedness as of the date of incurrence thereof or is entitled to be
incurred pursuant to the first paragraph of this covenant as of the date of
incurrence thereof, the Company shall, in its sole discretion, classify or
reclassify such item of Indebtedness in any manner that complies with this
covenant. Accrual of interest, the accretion of accreted value and the payment
of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant and the payment of
dividends on Redeemable Capital Stock in the form of additional shares of the
same class of Redeemable Capital Stock will not be deemed an issuance of
Redeemable Capital Stock.
SECTION V.10 Limitation on Restricted Payments. The Company
will not, and will not permit any Subsidiary to, directly or indirectly:
(a) declare or pay any dividend on, or make any
distribution to holders of, any Capital Stock of the Company
(other than dividends or distributions payable solely in
shares of Qualified Capital Stock of the Company or in
options, warrants or other rights to acquire Qualified Capital
Stock of the Company);
(b) purchase, redeem, defease or otherwise acquire or
retire for value any Capital Stock of the Company or any
Affiliate thereof (other than any Wholly Owned Subsidiary of
the Company) or any option, warrant or other right to acquire
such Capital Stock of the Company or any Affiliate thereof;
(c) make any principal payment on, or redeem,
repurchase, defease or otherwise acquire or retire for value
in each case, prior to any scheduled repayment, or maturity,
any Subordinated Indebtedness; or
(d) make any Investment in any Person (other than any
Permitted Investment) unless the Person thereby becomes a
Wholly Owned Subsidiary;
<PAGE>
45
(such payments described in (a) through (d) collectively, "Restricted
Payments"), unless at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), (1) no Default or Event of
Default shall have occurred and be continuing; and such Restricted Payment shall
not be an event which is, or after notice or lapse of time or both, would be, an
"event of default" under the terms of any Indebtedness of the Company or any
Subsidiary; (2) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of additional
Indebtedness under Section 5.9 (other than Permitted Indebtedness); and (3) the
aggregate amount of all Restricted Payments (plus, without duplication,
dividends and distributions paid to any Person other than the Company, a Wholly
Owned Subsidiary or a Permitted Joint Venture as permitted by Section 5.11 and
any Restricted Payments made pursuant to clauses (i), (iv), (v) and (vi) of the
succeeding paragraph) declared or made after the date hereof shall not exceed
the sum of
(A) 50% of the Consolidated Net Income of the Company accrued
on a cumulative basis during the period beginning on October 7, 1996
and ending on the last day of the Company's last fiscal quarter ending
prior to the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss);
(B) the aggregate Net Cash Proceeds received after October 7,
1996 by the Company as capital contributions to the Company;
(C) the aggregate Net Cash Proceeds received after October 7,
1996 by the Company from the issuance or sale (other than to any of its
Subsidiaries) of shares of Capital Stock (other than Redeemable Capital
Stock) of the Company or any options or warrants to purchase such
shares (other than issuances in respect of clause (ii) of the
subsequent paragraph) of Capital Stock (other than Redeemable Capital
Stock) of the Company;
(D) the aggregate Net Cash Proceeds received after October 7,
1996 by the Company (other than from any of its Subsidiaries) upon the
exercise of any options or warrants to purchase shares of Capital Stock
of the Company;
(E) the aggregate Net Cash Proceeds received after October 7,
1996 by the Company for debt securities that have been converted into
or exchanged for Qualified Capital Stock of the Company to the extent
such debt securities are originally sold for cash plus the aggregate
cash received by the Company at the time of such conversion or
exchange; and
(F) other Restricted Payments in an aggregate amount not to
exceed $10,000,000.
None of the foregoing provisions shall be deemed to prohibit
the following Restricted Payments so long as in the case of clauses (ii), (iii),
(v) and (vi) there is no Default or Event of Default continuing:
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46
(i) dividends paid within 60 days after the date of
declaration if at the date of declaration, such payment would be
permitted by the provisions of the preceding paragraph and such payment
shall be deemed to have been paid on such date of declaration for
purposes of the calculation required by the provisions of the foregoing
paragraph;
(ii) the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the Company
or Subordinated Indebtedness in exchange for, or out of the net
proceeds of, a substantially concurrent issue and sale (other than to a
Subsidiary) of shares of Qualified Capital Stock of the Company;
provided that any net proceeds from the issue and sale of such
Qualified Capital Stock are excluded from clause 3(C) of the foregoing
paragraph;
(iii) the redemption, repurchase, or other acquisition or
retirement of Subordinated Indebtedness of the Company (other than
Redeemable Capital Stock) made by exchange for, or out of the proceeds
of the substantially concurrent sale of, new Indebtedness of the
Company so long as (A) the principal amount of such new Indebtedness
does not exceed the principal amount of the Indebtedness being so
redeemed, repurchased, acquired or retired for value (plus the amount
of any premium required to be paid under the terms of the instrument
governing the Indebtedness being so redeemed, repurchased, acquired or
retired), (B) such Indebtedness is subordinated to Senior Indebtedness
and the Notes at least to the same extent as such Subordinated
Indebtedness so purchased, exchanged, redeemed, repurchased, acquired
or retired for value, (C) such Indebtedness has a Stated Maturity for
its final scheduled principal payment later than the Stated Maturity
for the final scheduled principal payment of the Notes and (D) such
Indebtedness has an Average Life to Stated Maturity equal to or greater
than the remaining Average Life to Stated Maturity of the Notes;
(iv) any purchase, redemption or other acquisition of
Capital Stock of a Permitted Joint Venture from a physician or other
healthcare provider which is required to be purchased, redeemed or
otherwise acquired by applicable law;
(v) in addition to the transactions covered by clause
(iv) of this paragraph, any purchase, redemption or other acquisition
of Capital Stock of a Permitted Joint Venture; or
(vi) the making of any payment pursuant to any guarantee
of Indebtedness of a Permitted Joint Venture.
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SECTION V.11 Restrictions on Preferred Stock of Subsidiaries
and Subsidiary Distributions. (a) The Company will not permit any Subsidiary to
issue any Preferred Stock (other than Preferred Stock issued (i) prior to the
date hereof or (ii) to the Company or a Wholly Owned Subsidiary (collectively,
"Permitted Preferred Stock")), or permit any Person (other than the Company or a
Wholly Owned Subsidiary) to own or hold any interest in any Preferred Stock of
any Subsidiary, other than with respect to any Preferred Stock issued prior to
the date hereof, unless a Subsidiary would be entitled to create, incur or
assume Indebtedness pursuant to Section 5.9 in the aggregate principal amount
equal to the aggregate liquidation value of the Preferred Stock to be issued.
(b) The Company will not, and will not permit any Subsidiary
to, declare or pay dividends or distributions on any Capital Stock of such
Subsidiary to any Person (other than to the Company or any Wholly Owned
Subsidiary or any lender in its capacity as a pledgee of Capital Stock of any
Subsidiary under the Credit Facility); provided, that the foregoing shall not
prohibit (i)(A) the Company or any Subsidiary from making any payment of
dividends or distributions on the Capital Stock of any Subsidiary in the
aggregate up to the amount of Restricted Payments that the Company could make at
any time pursuant to Section 5.10; (B) the purchase, redemption, or other
acquisition of the Capital Stock of a Permitted Joint Venture from a physician
or other healthcare provider which is required to be purchased, redeemed or
otherwise acquired by applicable law; or (C) the payment of pro rata dividends
or distributions to holders of minority interests in the Capital Stock of a
Subsidiary made in accordance with the terms of the agreement pursuant to which
such payment is made; or (ii) in addition to the transactions covered by clause
(i)(B) of this paragraph, in the event no Default or Event of Default has
occurred and is continuing, the purchase, redemption, or other acquisition of
the Capital Stock of a Permitted Joint Venture.
SECTION V.12 Limitation on Transactions with Affiliates. The
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate of the Company (other
than a Wholly Owned Subsidiary or a Permitted Joint Venture) unless (i) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party and (ii) with respect to a transaction or series of related
transactions involving payments in excess of $5,000,000 in the aggregate, the
Company delivers an Officers' Certificate to the Trustee certifying that (x)
such transaction complies with clause (i) above and (y) such transaction or
series of related transactions shall have been approved by a majority of the
independent directors of the Board of Directors of the Company; provided,
however, that the foregoing restriction shall not apply to (a) any transaction
or series of related transactions entered into prior to the date hereof, (b) the
payment of reasonable and customary regular fees to directors of the Company or
any of its Subsidiaries who are not employees of the Company or any Affiliate or
(c) the Company's employee compensation and other benefit arrangements.
SECTION V.13 Disposition of Proceeds of Asset Sales. (a) The
Company will not, and will not permit any Subsidiary to, make any Asset Sale
unless (i) the Company or such Subsidiary receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the shares or assets
subject to such Asset Sale (as determined by the Board of Directors of the
Company and evidenced in a board resolution whose determination shall be
conclusive) and (ii) at least 75% of the proceeds from such Asset Sale when
received consists of cash or Cash Equivalents; provided, however, any Asset Sale
which constitutes a Permitted Investment under clause (vii) or (viii) of the
definition of Permitted Investment shall not be subject to the condition set
forth in clause (ii) of this sentence.
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(b) If all or a portion of the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay permanently any outstanding Senior
Indebtedness as required by the terms thereof, or, if not so required to be
applied, the Company determines not to apply such Net Cash Proceeds to the
prepayment of such Senior Indebtedness or if no such Senior Indebtedness is
outstanding, then the Company may within one year of the Asset Sale, invest (or
enter into a legally binding agreement to invest) the Net Cash Proceeds in
properties and assets that (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the businesses of the Company, its
Wholly Owned Subsidiaries or its Permitted Joint Ventures existing on the date
hereof or in any Healthcare Related Business. If any such legally binding
agreement to invest any Net Cash Proceeds is terminated, then the Company may
invest such Net Cash Proceeds, prior to the end of such one-year period or six
months from such termination, whichever is later, in the business of the
Company, its Wholly Owned Subsidiaries or Permitted Joint Ventures or in any
Healthcare Related Business as provided above. The amount of such Net Cash
Proceeds neither used to repay or prepay Senior Indebtedness nor used or
invested as set forth in this paragraph (after the periods specified in this
paragraph) constitutes "Excess Proceeds."
(c) Subject to paragraph (f) below, when the aggregate amount
of Excess Proceeds equals $10,000,000 or more, the Company shall apply the
Excess Proceeds to the repayment of the Notes and other Indebtedness that is
pari passu with the Notes containing provisions similar to those set forth in
the Indenture as follows: the Company shall make an offer to purchase (an
"Offer") from all holders of the Notes and other pari passu Indebtedness in
accordance with the procedures set forth herein and in such other pari passu
Indebtedness in the maximum principal amount (expressed as a multiple of $1,000
in the case of the Notes) of Notes and such other pari passu Indebtedness that
may be purchased out of an amount (the "Asset Sale Offer Amount") equal to the
product of such Excess Proceeds multiplied by a fraction, the numerator of which
is the outstanding principal amount of the Notes and such other pari passu
Indebtedness, and the denominator of which is the sum of the outstanding
principal amount of the Notes and such other pari passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all Notes and such other pari passu Indebtedness tendered).
The offer price shall be payable in cash in an amount equal to 100% of the
principal amount of the Notes and such other pari passu Indebtedness plus
accrued and unpaid interest, if any, to the date such Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth herein and in such
other pari passu Indebtedness. To the extent that the aggregate Offered Price of
the Notes and such other pari passu Indebtedness tendered pursuant to an Offer
is less than the Asset Sale Offer Amount relating thereto (such shortfall
constituting a "Deficiency"), the Company may use such Deficiency, or a portion
thereof, in the business of the Company, its Wholly Owned Subsidiaries or its
Permitted Joint Ventures or any Healthcare Related Business. Upon completion of
the purchase of all the Notes and such other pari passu Indebtedness tendered
pursuant to an Offer, the amount of Excess Proceeds shall be reset at zero.
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(d) Whenever the Excess Proceeds received by the Company
exceed $10,000,000, in the case of the Notes, such Excess Proceeds shall be set
aside by the Company in a separate account pending (i) deposit with the Trustee
or a Paying Agent of the amount required to purchase the Notes tendered in an
Offer, (ii) delivery by the Company of the Offered Price to the holders of the
Notes tendered in an Offer and (iii) application, as set forth above, of Excess
Proceeds for general corporate purposes. Such Excess Proceeds may be invested in
Temporary Cash Investments, provided that the maturity date of any investment
made after the amount of Excess Proceeds exceeds $10,000,000 shall not be later
than the Offer Date. The Company shall be entitled to any interest or dividends
accrued, earned or paid on such Temporary Cash Investments. The Company shall
apply the Excess Proceeds to the repayment of such other pari passu Indebtedness
pursuant to an Offer in accordance with the provisions of such other pari passu
Indebtedness.
(e) If the Company becomes obligated to make an Offer pursuant
to clause (c) above, the Notes shall be purchased by the Company, at the option
of the holder thereof, in whole or in part in integral multiples of $1,000, on a
date that is not earlier than 30 days and not later than 60 days from the date
the notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act, subject to
proration in the event the amount of Excess Proceeds is less than the aggregate
Offered Price of all Notes tendered and to satisfaction by or on behalf of the
holder of the requirements set forth in clause (f) below.
(f) In the event that the Company shall be unable to purchase
Notes from holders thereof in an Offer because of the provisions (i) of
applicable law, (ii) of the Company's loan agreements, indentures or other
contracts in existence on the date hereof, (iii) permitted to exist or become
effective by subparagraph (h)(ii) below or (iv) of the Credit Facility, the
Company need not make an Offer. The Company shall then be obligated to (i)
invest the Excess Proceeds in properties and assets to replace the properties
and assets that were the subject of the Asset Sale or in properties and assets
that (as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) will be used in the businesses
of the Company, its Wholly Owned Subsidiaries or its Permitted Joint Ventures
existing on the date hereof or in any Healthcare Related Business or (ii) apply
the Excess Proceeds to repay Senior Indebtedness.
(g) The Company shall comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, in connection with an Offer.
(h) The Company will not, and will not permit any Subsidiary
to, create or permit to exist or become effective any restriction (other than
restrictions existing under (i) Indebtedness as in effect on the date hereof or
(ii) any Senior Indebtedness existing on the date hereof or thereafter) that
would materially impair the ability of the Company to make an Offer to purchase
the Notes upon an Asset Sale or, if such Offer is made, to pay for the Notes
tendered for purchase.
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(i) Subject to paragraph (f) above, within 30 days after the
date on which the amount of Excess Proceeds equals or exceeds $10,000,000, the
Company shall send by first-class mail, postage prepaid, to the Trustee and to
each Holder of the Notes, at his or her address appearing in the Note Register,
a notice specifying, among other things:
(1) that the Holder has the right to require the Company to
repurchase, subject to proration, such Holder's Notes at the Offered
Price;
(2) the Purchase Date;
(3) the instructions a Holder must follow in order to have its
Notes purchased in accordance with paragraph (c) of this Section; and
(4) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q and
any Current Report on Form 8-K of the Company filed subsequent to such
Quarterly Report, other than Current Reports describing Asset Sales
otherwise described in the offering materials (or corresponding
successor reports) (or in the event the Company is not required to
prepare any of the foregoing Forms, the comparable information required
pursuant to Section 5.18), (ii) a description of material developments
in the Company's business subsequent to the date of the latest of such
Reports, (iii) if material, appropriate pro forma financial
information, and (iv) such other information, if any, concerning the
business of the Company which the Company in good faith believes will
enable such Holders to make an informed investment decision.
(j) Holders electing to have Notes purchased will be required
to give notice and surrender such Notes to the Company at the address specified
in the notice at least two Business Days prior to the Purchase Date. An election
may be withdrawn before or after delivery by the Holder to the Company or its
agent at the address specified in writing by the Company, by means of a written
notice of withdrawal delivered by the Holder to the Company or its agent at any
time prior to the close of business on two Business Days prior to the Purchase
Date specifying, as applicable:
(1) the certificate number of the Note in respect of which
such notice of withdrawal is being submitted;
(2) the principal amount of the Note (which shall be $1,000 or
an integral multiple thereof) with respect to which such notice of
withdrawal is being submitted; and
(3) the principal amount, if any, of such Note (which shall be
$1,000 or an integral multiple thereof) that remains subject to the
original notice of the Offer and that has been or will be delivered to
the Company or its agent for purchase by the Company.
Holders will be entitled to withdraw their election if the Company receives, not
later than two Business Days prior to the Purchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes delivered for purpose by the Holder as to which
his election is to be withdrawn and a statement that such Holder is withdrawing
his election to have such Notes purchased.
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(k) Not later than the Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof tendered pursuant to the Offer,
(ii) by 11 a.m. on the Business Day prior to the Purchase Date, deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 5.4(c)) an amount of
money in same day funds (or New York Clearing House funds if such deposit is
made prior to the Purchase Date) sufficient to pay the aggregate Offered Price
of all the Notes or portions thereof which are to be purchased on that date
(iii) deliver to the Paying Agent an Officers' Certificate stating the
securities or portions thereof accepted for payment by the Company.
The Trustee and the Paying Agent shall return to the Company
any cash that remains unclaimed, together with interest or dividends, if any,
thereon, held by them for the payment of the Offered Price; provided, however,
that, to the extent that the aggregate amount of cash deposited by the Company
with the Trustee in respect of an offer exceeds the aggregate Offered Price of
the Notes or portions thereof to be purchased, then the Trustee shall hold such
excess for the Company and promptly after the Business Day following the
Purchase Date the Trustee shall upon demand return any such excess to the
Company together with interest or dividends, if any, thereon.
(l) Notes to be purchased shall, on the Purchase Date, become
due and payable at the Offered Price and from and after such date (unless the
Company shall default in the payment of the Offered Price) such Notes shall
cease to bear interest. Such Offered Price shall be paid to such Holder promptly
following the later of the Business Day following the Purchase Date and the time
of delivery of such Note to the relevant Paying Agent at the office of such
Paying Agent by the Holder thereof in the manner required. Upon surrender of any
such Note for purchase in accordance with the foregoing provisions, such Note
shall be paid by the Company at the Offered Price; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Purchase
Date shall be payable to the Holders of such Notes, registered as such on the
record dates according to the terms and the provisions of Section 2.3; provided
further that Notes to be purchased are subject to proration in the event the
Notes Amount is less than the aggregate Offered Price of all Notes tendered for
purchase, with such adjustments as may be appropriate by the Trustee so that
only Notes in denominations of $1,000 or integral multiples thereof, shall be
purchased. If any Note tendered for purchase shall not be so paid upon surrender
thereof, the principal thereto (and premium, if any, thereon) shall, until paid,
bear interest from the Purchase Date at the rate borne by such Note. Any Note
that is to be purchased only in part shall be surrendered to a Paying Agent at
the office of such Paying Agent (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or such Holder's attorney duly authorized in writing), and the Company shall
execute and the Trustee shall authenticate and deliver to the Holder of such
Note, without service charge, one or more new Notes of any authorized
denomination as requested by such Holder in an aggregate principal amount equal
to, and in exchange for, the portion of the principal amount of the Note so
surrendered that is not purchased.
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SECTION V.14 Limitation on Liens Securing Subordinated
Indebtedness. The Company will not, and will not permit any Subsidiary to,
create, incur, assume or suffer to exist any Liens of any kind upon any of their
respective assets or properties now owned or acquired after the date hereof or
any income or profits therefrom securing (i) any Indebtedness of the Company
which is expressly by its terms subordinate or junior in right of payment to any
other Indebtedness of the Company, unless the Notes are equally and ratably
secured; provided that, if such Indebtedness which is expressly by its terms
subordinate or junior in right of payment to any other Indebtedness of the
Company is expressly subordinate to the Notes, the Lien securing such
subordinated or junior Indebtedness shall be subordinate and junior to the Lien
securing the Notes with the same relative priority as such subordinated or
junior Indebtedness shall have with respect to the Notes; provided, further,
that this clause (i) shall not be applicable to any Liens securing any such
Indebtedness which became Indebtedness of the Company pursuant to a transaction
permitted under Article XII or Liens securing Acquired Indebtedness and, in each
case, which Liens were in existence at the time of such transaction or
incurrence of such Acquired Indebtedness (unless such Indebtedness was incurred
in connection with, or in contemplation of, such transaction or incurrence of
such Acquired Indebtedness), so long as such Liens do not extend to or cover any
property or assets of the Company or any Subsidiary other than property or
assets acquired in such transaction or securing such Acquired Indebtedness, or
(ii) any assumption, guarantee or other liability of any Subsidiary in respect
of any Indebtedness of the Company which is expressly by its terms subordinate
or junior in right of payment to any other Indebtedness of the Company, unless
the substantially similar assumption, guarantee or other liability of such
Subsidiary in respect of the Notes is equally and ratably secured; provided
that, if such subordinated Indebtedness is expressly by its terms subordinate or
junior to the Notes, then the Lien securing the assumption, guarantee or other
liability of such Subsidiary in respect of such subordinated or junior
Indebtedness shall be subordinate and junior to the Lien securing the
assumption, guarantee or other liability of such Subsidiary in respect of the
Notes with the same relative priority as such subordinated or junior
Indebtedness shall have with respect to the Notes; provided, further, that this
clause (ii) shall not be applicable to Liens securing any such assumption,
guarantee or other liability which existed at the time such Subsidiary became a
Subsidiary and which Liens were in existence at the time of such transaction
(unless such assumption, guarantee or other liability was incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary), so long as
such Liens do not extend to or cover any property or assets of the Company or
any Subsidiary other than the property or assets of such Person.
SECTION V.15 Limitation on Other Senior Subordinated
Indebtedness. The Company will not create, incur, assume, guarantee or in any
other manner become liable with respect to any Indebtedness, other than the
Notes, that is subordinate in right of payment to any Senior Indebtedness,
unless such Indebtedness is also pari passu with, or subordinate in right of
payment to, the Notes pursuant to subordination provisions substantially similar
to those contained herein.
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53
SECTION V.16 Limitation on Issuance of Guarantees of
Subordinated Indebtedness. (a) The Company will not permit any Subsidiary,
directly or indirectly, to assume, guarantee or in any other manner become
liable with respect to any Indebtedness of the Company which is expressly by its
terms subordinate or junior in right of payment to any other Indebtedness of the
Company unless (i) such Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture providing for a guarantee of payment of
the Notes by such Subsidiary and (A) if any such assumption, guarantee or other
liability is subordinated, the guarantee under the supplemental indenture shall
be subordinated to the same extent as the Notes are subordinated to Senior
Indebtedness of the Company under this Indenture and (B) if such subordinated or
junior Indebtedness is by its terms expressly subordinated to the Notes, any
such assumption, guarantee or other liability of such Subsidiary with respect to
such subordinated or junior Indebtedness shall be subordinated to such
Subsidiary's assumption, guarantee or other liability with respect to the Notes
to the same extent as such subordinated or junior Indebtedness is subordinated
or junior to the Notes under this Indenture; and (ii) such Subsidiary waives and
will not in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Subsidiary as a result of any payment by such
Subsidiary under its Guarantee.
(b) Each guarantee created pursuant to the provisions
described in the foregoing paragraph is referred to as a "Guarantee" and the
issuer of each such Guarantee is referred to as a "Guarantor." Notwithstanding
the foregoing, any Guarantee by a Subsidiary of the Notes shall provide by its
terms that it (together with any Liens arising from such Guarantee) shall be
automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer, to any Person not an affiliate of the Company, of all of
the Company's Capital Stock in, or all or substantially all the assets of, such
Subsidiary, which is in compliance with this Indenture or (ii) the release or
discharge of the assumption, guarantee or other liability which resulted in the
creation of such Guarantee.
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SECTION V.17 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. The Company will not, and will not permit
any Subsidiary to, create or otherwise cause or suffer to exist or become
effective any restriction of any kind, on the ability of any Subsidiary to (i)
pay dividends or make any other distribution on its Capital Stock to the Company
or any other Subsidiary, (ii) pay any Indebtedness owed to the Company or any
other Subsidiary, (iii) make any Investment in the Company or any other
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Subsidiary, except (a) any encumbrance or restriction existing under or by
reasons of applicable law; (b) any encumbrance or restriction existing under or
by reason of customary non-assignment provisions of any lease governing a
leasehold interest of the Company, or any Subsidiary; (c) any restriction
pursuant to an agreement in effect at or entered into on the date hereof as set
forth in Schedule I hereto; (d) any restriction existing under the Credit
Facility as in effect on the date hereof; (e) any restriction, with respect to a
Subsidiary that is not a Subsidiary on the date hereof, in existence at the time
such Person becomes a Subsidiary or created on the date it becomes a Subsidiary
and not incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary; and (f) any restriction existing under any agreement that
extends, renews, refinances or replaces the agreements containing the
restrictions in the foregoing clauses (c) through (e), provided that the terms
and conditions of any such restrictions are not materially less favorable to the
holders of the Notes than those under or pursuant to the agreement evidencing
the Indebtedness so extended, renewed, refinanced or replaced (in the opinion of
the Board of Directors of the Company whose determination shall be conclusive).
Notwithstanding the foregoing, nothing in this Section 5.17 shall prohibit or
restrict the creation, incurrence, assumption, suffering to exist or becoming
effect of any Indebtedness or Liens upon any of the assets of the Company and
its Subsidiaries, the pledge by the Company or any Subsidiary of any Capital
Stock of any Subsidiary, the guarantee of any Indebtedness by any Subsidiary, in
each case, in accordance with the other terms of this Indenture, or any action
taken to exercise any remedy in respect of any such Indebtedness, Lien or pledge
or to enforce such guarantee.
SECTION V.18 Provision of Financial Statements. As long as any
of the Notes remain outstanding hereunder, the Company and any Guarantor will be
required to file with the Commission the annual reports, quarterly reports and
other information which the Company and the Guarantors, if any, are required to
be filed with the Commission pursuant to Section 13(a), 13(c) or 15(d) of the
Exchange Act, whether or not the Company or any Guarantor has a class of
securities registered under the Exchange Act. The Company and any Guarantor will
supply without cost to each Holder of the Notes and file with the Trustee within
fifteen days after the filing thereof in the Commission, copies of such annual
reports, quarterly reports and any other such information.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee=s receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company=s
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION V.19 Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, on or before a
date not more than 60 days after the end of each fiscal quarter and not more
than 120 days after the end of each Fiscal Year of the Company ending after the
date hereof, a written statement signed by two executive officers of the
Company, one of whom shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company, stating
whether or not, after a review of the activities of the Company during such year
or such quarter and of the Company's performance under this Indenture, to the
best knowledge, based on such review, of the signers thereof, the Company has
fulfilled all its obligations and is in compliance with all conditions and
covenants under this Indenture throughout such year or quarter, as the case may
be, and, if there has been a Default specifying each Default and the nature and
status thereof.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder or
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default (other than
with respect to Indebtedness in the principal amount of less than $1,000,000),
the Company shall deliver to the Trustee by registered or certified mail or by
facsimile transmission followed by hard copy an Officers' Certificate specifying
such Default, Event of Default, notice or other action within five Business Days
of its occurrence.
SECTION V.20 Waiver of Certain Covenants.
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The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 5.6 through 5.12 and 5.15
through 5.19, if, before or after the time for such compliance, the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding waive such compliance in such instance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect
SECTION V.21 Further assurance. From time to time whenever
reasonably demanded by the Trustee the Company will make, execute and deliver or
cause to be made, executed and delivered any and all such further and other
instruments and assurances as may be reasonably necessary or proper to carry out
the intention of or to facilitate the performance of the terms of this Indenture
or to secure the rights and remedies hereunder of the holders of the Notes.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION VI.1 Company to furnish Trustee information as to
names and addresses of Noteholders. The Company will furnish or cause to be
furnished to the Trustee:
(a) semi-annually, not more than 15 days after each record
date for the payment of interest, a list of the names and addresses of
the Noteholders as of such record date;
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished; and
(c) after the consummation of the Exchange Offer, and subject
to the second paragraph of Section 5.18 hereof, any other information
as may be required from time to time in accordance with Section 312(a)
of the Trust Indenture Act;
provided, however, that so long as the Trustee is the Note Registrar, no such
list referred to in subsections (a) and (b) shall be required to be furnished.
SECTION VI.2 Preservation and disclosure of lists. (a) The
Trustee shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the holders of Notes (i) contained
in the most recent list furnished to it as provided in Section 6.1 and (ii)
received by it in the capacity of the paying agent (if so acting) and Note
Registrar.
The Trustee may destroy any list furnished to it as provided
in Section 6.1 upon receipt of a new list so furnished.
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(b) In case three or more holders of Notes (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such applicant has owned a Note for a period
of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other holders
of Notes with respect to their rights under this Indenture or under the Notes,
and is accompanied by a copy of the form of proxy or other communication which
such applicants propose to transmit, then the Trustee shall, within five
Business Days after the receipt of such application, at its election either
(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 6.2; or
(ii) inform such applicants as to the approximate number of
holders of Notes whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with the provisions
of subsection (a) of this Section 6.2, and as to the approximate cost
of mailing to such Noteholders the form of proxy or other
communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Noteholder whose name and address appears in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 6.2, a copy of the form of proxy or
other communication which is specified in such request, with reasonable
promptness after a tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable expenses of mailing,
unless within five days after such tender, the Trustee shall mail to such
applicants and file with the Commission, together with a copy of the material to
be mailed, a written statement to the effect that, in the opinion of the
Trustee, such mailing would be contrary to the best interests of the holders of
Notes or would be in violation of applicable law. Such written statement shall
specify the basis of such opinion. After opportunity for hearing upon the
objections specified in the written statement so filed, the Commission may enter
an order either sustaining one or more of such objections or refusing to sustain
any of them. If the Commission, shall enter an order refusing to sustain any of
such objections or if, after the entry of an order sustaining one or more of
such objections, said Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Noteholders with reasonable promptness after the entry of such order and the
renewal of such tender, otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(c) Each and every holder of the Notes, by receiving and
holding the same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any Paying Agent nor the Note Registrar shall be
held accountable by reason of the disclosure of any such information as to the
names and addresses of the holders of Notes in accordance with the provisions of
subsection (b) of this Section 6.2, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under said subsection
(b).
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SECTION VI.3 Reports by the Trustee. (a) Within 60 days after
each January 15 of each year, beginning in 2000, so long as there are any Notes
outstanding hereunder, the Trustee shall transmit by mail to all Noteholders a
brief report dated as of such January 15 with respect to any of the following
events which may have occurred during the twelve months preceding the date of
such report (but if no such event has occurred within such period, no report
need be transmitted):
(1) any change to its eligibility under Section 8.9 and its
qualification under Section 8.8;
(2) the creation of or any material change to a relationship
specified in Section 310(b)(1) through Section 310(b)(10) of the Trust
Indenture Act;
(3) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of such report, and for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Notes, on any property or
funds held or collected by it as Trustee, except that the Trustee shall
not be required (but may elect) to state such advances if such advances
so remaining unpaid aggregate not more than 0.5 percent of the
principal amount of the Notes outstanding on the date of such report;
(4) the amount, interest rate, and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Notes) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in paragraph (2), (3), (4)
or (6) of subsection (b) of Section 311 of the Trust Indenture Act;
(5) any change to the property and funds, if any, physically
in the possession of the Trustee (as such) on the date of such report;
(6) any additional issue of Notes which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its
duties under this Indenture which it has not previously reported and
which in its opinion materially affects the Notes, except action in
respect of a Default, notice of which has been or is to be withheld by
it in accordance with the provisions of Section 8.14.
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(b) The Trustee shall transmit to the Noteholders, as
hereinafter provided, a brief report with respect to the character and amount of
any advances made by the Trustee (as such) since the date of the last report
transmitted pursuant to the provisions of subsection (a) of this Section 6.3 (or
if no such report has yet been so transmitted, since the date of execution of
this Indenture), for the reimbursement of which it claims or may claim a lien or
charge prior to that of the Notes on property or funds held or collected by it
as Trustee, and which it has not previously reported pursuant to this subsection
(b), except that the Trustee shall not be required to report such advances if
such advances remaining unpaid at any time aggregate 10% or less of the
principal amount of Notes outstanding at such time, such report to be
transmitted within 90 days after such time.
(c) Reports pursuant to this Section 6.3 shall be transmitted
by mail to all holders of Notes, as the names and addresses of such holders
appear in the Note Register.
(d) A copy of each such report shall, at the time of such
transmission to Noteholders, be furnished to the Company and be filed by the
Trustee with each stock exchange upon which the Notes are listed and also with
the Commission. The Company will notify the Trustee when and as the Notes become
listed on any stock exchange.
(e) Notwithstanding the foregoing provisions of this Section
6.3, the foregoing provisions of this Section 6.3 shall not be operative as a
part of this Indenture until this Indenture is qualified under the Trust
Indenture Act, and, until such qualification, this Indenture shall be construed
as if this Section 6.3 were not contained herein.
SECTION VI.4 Reports by the Company.
(a) The Company will, for so long as any Notes remain
outstanding, furnish to the Noteholders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(b) Such reports shall be delivered to the Note Registrar and
the Note Registrar will mail them at the Company's expense to the Noteholders at
their addresses appearing in the Note Register maintained by the Note Registrar.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(c) Upon qualification of this Indenture under the TIA, the
Company shall also comply with the provisions of Trust Indenture Act [Section]
314(a).
(d) The Company shall provide to the Trustee on a timely basis
such information as the Trustee requires to enable the Trustee to prepare and
file any form required to be submitted by the Company with the Internal Revenue
Service and the Noteholders relating to original issue discount, including,
without limitation, Form 1099-OID or any successor form.
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ARTICLE VII
REMEDIES
SECTION VII.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be occasioned by the provisions of Article
III or be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on
any Note when it becomes due and payable, and such default shall
continue for a period of 30 days;
(b) there shall be a default in the payment of the principal
of (or premium, if any, on) any Note at its Stated Maturity;
(c) (i) there shall be a default in the performance, or
breach, of any covenant or agreement of the Company or of any Guarantor
under this Indenture (other than a default in the performance or breach
of a covenant or agreement which is specifically dealt with elsewhere
in this Indenture) and such default or breach shall continue for a
period of 30 days after written notice has been given, by certified
mail, (x) to the Company by the Trustee or (y) to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount of
the outstanding Notes; (ii) there shall be a default in the performance
or breach of the provisions of Article XII; (iii) the Company shall
have failed to make or consummate an Offer in accordance with Section
5.13; or (iv) the Company shall have failed to make or consummate a
Change in Control Offer in accordance with Section 4.5;
(d) one or more defaults shall have occurred under any
agreements, indentures or instruments under which the Company or any
Subsidiary then has outstanding Indebtedness in excess of $5,000,000 in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been
accelerated;
(e) one or more judgments, orders or decrees for the payment
of money in excess of $5,000,000, either individually or in the
aggregate, shall be entered against the Company or any Subsidiary or
any of their respective properties which is not fully covered by
insurance, bond, surety or similar instrument and shall not be
discharged and there shall have been a period of 60 days during which a
stay of enforcement of such judgment or order, by reason of an appeal
or otherwise, shall not be in effect;
(f) the entry of a decree or order by a court having
jurisdiction in the premises (i) for relief in respect of the Company
or any Subsidiary in an involuntary case or proceeding under any
Bankruptcy Law or (ii) adjudging the Company or any Subsidiary a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any
Subsidiary under any Bankruptcy Law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Subsidiary or of any substantial part
of any of their properties, or ordering the winding up or liquidation
of any of their affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
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(g) the institution by the Company or any Subsidiary of a
voluntary case or proceeding under any Bankruptcy Law or any other case
or proceedings to be adjudicated a bankrupt or insolvent, or the
consent by the Company or any Subsidiary to the entry of a decree or
order for relief in respect of the Company or any Subsidiary in any
involuntary case or proceeding under any Bankruptcy Law or to the
institution of bankruptcy or any insolvency proceedings against the
Company or any Subsidiary, or the filing by the Company or any
Subsidiary of a petition or answer or consent seeking reorganization or
relief under any Bankruptcy Law, or the consent by it to the filing of
any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of any of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due
or taking of corporate action by the Company or any Subsidiary in
furtherance of any such action.
The Company shall deliver to the Trustee within five days
after the occurrence thereof, written notice, in the form of an Officers'
Certificate, of any Default, its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION VII.2 Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default specified in
Sections 7.1(f) and (g)) occurs and is continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Notes outstanding may,
and the Trustee upon the request of the Holders of not less than 25% in
aggregate principal amount of the Notes outstanding shall, declare the principal
of all the Notes to be due and payable immediately in an amount equal to the
principal amount of the Notes, together with accrued and unpaid interest to the
date the Notes become due and payable, by a notice in writing to the Company
(and to the Trustee, if given by the Holders and, if the Credit Facility is in
effect, to the Senior Representative with respect thereto), and upon any such
declaration such principal shall become immediately due and payable. If an Event
of Default specified in Sections 7.1(f) and (g) occurs and is continuing, then
the principal of all the Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
At any time after such declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority in aggregate principal amount of the Notes outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all sums paid or advanced by the Trustee under Section
8.6 and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel,
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(ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the
Notes, and
(iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Notes; and
(b) all Events of Default, other than the non-payment of
principal of Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 7.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon provided in Section 7.13.
SECTION VII.3 Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company and any Guarantor covenant that if
(a) default is made in the payment of any interest on any Note
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Note at the stated maturity thereof,
(c) the Company and any such Guarantor will, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Notes, subject to
Article III, the whole amount then due and payable on such Notes for principal
and premium, if any, and interest, with interest upon the overdue principal and
premium, if any, and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate borne by
the Notes; and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company or any Guarantor, as the case may be, fails to
pay such amounts forthwith upon such demand, the Trustee, in its own name and as
trustee of an express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Company or any
Guarantor or any other obligor upon the Notes and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the property of the
Company or any Guarantor or any other obligor upon the Notes, wherever situated.
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If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Indenture or the Guarantees by such appropriate
private or judicial proceedings as the Trustee shall deem most effectual to
protect and enforce such rights, including, seeking recourse against any
Guarantor pursuant to the terms of any Guarantee, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein or therein, or to enforce any other proper
remedy, including, without limitation, seeking recourse against any Guarantor
pursuant to the terms of a Guarantee, or to enforce any other proper remedy,
subject however to Section 7.12.
SECTION VII.4 Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor, including each
Guarantor, upon the Notes or the property of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) subject to Article III, to collect and receive any moneys
or other property payable or deliverable on any such claims and claims and to
distribute the same;
and any custodian, in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 8.6.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
SECTION VII.5 Trustee May Enforce Claims Without Possession of
Notes. All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect to which such judgment has been recovered.
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SECTION VII.6 Application of Money Collected. Any money
collected by the Trustee pursuant to this Article or otherwise on behalf of the
Holders or the Trustee pursuant to this Article or through any proceeding or any
arrangement or restructuring in anticipation or in lieu of any proceeding
contemplated by this Article shall be applied, subject to applicable law, in the
following order, at the date or dates taxed by the Trustee and, in case of the
distribution of such money on account of principal, premium, if any, or
interest, upon presentation of the Notes and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 8.6;
SECOND: Subject to Article III, to the payment of the amounts
then due and unpaid upon the Notes for principal, premium, if any, and
interest, in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Notes for
principal, premium, if any, and interest; and
THIRD: Subject to Article III, the balance, if any, to the
Person or Persons entitled thereto, including the Company, provided
that all sums due and owing to the Holders and the Trustee have been
paid in full as required by this Indenture.
SECTION VII.7 Limitation on Suits. Subject to Section 7.8, no
Holder of any Notes shall have any right to institute any proceeding, judicial
or otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of
the outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee an
indemnity satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the outstanding Notes;
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it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any Guarantee to affect, disturb or prejudice the rights of
any other Holders, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner provided in this Indenture or any Guarantee and for the equal and ratable
benefit of all the Holders.
SECTION VII.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Note shall have the right on the terms stated
herein, which is absolute and unconditional, to receive payment of the principal
of, premium, if any, and (subject to Section 2.3) interest on such Note on the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date, or, in the case of a Change in Control
Offer, on the Change in Control Purchase Date, or, in the case of an Offer in
respect of Excess Proceeds, on the Purchase Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder, subject to Article III.
SECTION VII.9 Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture or the Guarantees and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, each of
the Guarantors, the Trustee and the Holders shall, subject to any determination
in such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
SECTION VII.10 Rights and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION VII.11 Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Note to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION VII.12 Control by Holders. The Holders of not less
than a majority in aggregate principal amount of the outstanding Notes shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture or any Guarantee or expose the Trustee to personal
liability; and
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(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION VII.13 Waiver of Past Defaults. The Holders of not
less than a majority in aggregate principal amount of the outstanding Notes may
on behalf of the Holders of all the Notes waive any past Default hereunder and
its consequences, except a Default
(a) in the payment of the principal of, premium, if any, or
interest on any Note, or
(b) in respect of a covenant or provision hereof which under
Article XI cannot be modified or amended without the consent of the Holder of
each outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION VII.14 Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Note by his or her acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken, suffered or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the outstanding Notes, or to any suit instituted
by any Holder for the enforcement of the payment of the principal of, premium,
if any, or interest on any Note on or after the respective Stated Maturities
expressed in such Note (or, in the case of redemption, on or after the
Redemption Date).
SECTION VII.15 Waiver of Stay, Extension or Usury Laws.
Each of the Company and any Guarantor covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay
or extension law or any usury or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any Guarantor
from paying all or any portion of the principal of, premium, if any, or interest
on the Notes contemplated herein or in the Notes or which may affect the
covenants or the performance of this Indenture; and each of the Company and any
Guarantor (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION VIII.1 Duties and responsibilities of Trustee.
(a) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and
only such duties and obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a
duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) Except as specifically set forth in Section 3.14 herein,
no provision of this Indenture shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that
(i) this subsection shall not be construed
to limit the effect of subsection (a) of this Section 8.1;
(ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer or
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the holders of not less
than a majority or, in the case of any direction delivered pursuant to
Section 7.2, 25% in principal amount of the Notes at the time
outstanding (determined as provided in Section 9.3, 9.4 or 9.5)
relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
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(iv) no provision contained in this
Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any
of its duties hereunder or in the exercise of any of its rights or
powers, if the Trustee reasonably believes that the repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(d) The Trustee shall not be required to take notice or to be
deemed to have notice of any Default or Event of Default hereunder except (i)
upon the failure by the Company to pay (or cause to be paid) any payments to be
made to the Trustee required to be made to the Trustee pursuant to the
provisions of this Indenture and (ii) if the Trustee is serving as Paying Agent,
upon the failure by the Company to pay (or cause to be paid) any payments to be
made to the Paying Agent required to be made to the Paying Agent pursuant to the
terms of this Indenture, unless the Trustee is specifically notified in writing
of such Default or Event of Default by the Company or the Holders of at least
25% in aggregate principal amount of outstanding Notes.
(e) Whether or not expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section and, upon qualification of this Indenture under the Trust Indenture Act,
the Trust Indenture Act.
SECTION VIII.2 Reliance on document, opinions, etc. Subject
to the provisions of Section 8.1:
(a) The Trustee may conclusively rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond, debenture or other paper or document
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) Any request, direction, order or demand of the
Company mentioned herein shall be sufficiently evidenced by an
instrument signed in the name of the Company by (i) the Chief Executive
Officer, the President or any Vice President and (ii) the Secretary or
any Assistant Secretary or the Treasurer or any Assistant Treasurer
(unless other evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of Directors of the
Company may be evidenced to the Trustee by a copy thereof certified by
the Secretary or any Assistant Secretary of the Company;
(c) The Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
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(d) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by or pursuant to
this Indenture at the request, order or direction of any of the
Noteholders, pursuant to the provisions of this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby; but nothing herein contained shall,
however, relieve the Trustee of the obligation, upon the occurrence of
an Event of Default (which has not been cured or waived), to exercise
such of the rights and powers vested in it by this Indenture, and to
use the same degree of care and skill in their exercise, as a prudent
man would exercise or use under the circumstances in the conduct of his
own affairs;
(e) The Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(f) Prior to the occurrence of an Event of Default
hereunder and after the curing or waiving of all Events of Default, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond,
debenture, note, other evidence of indebtedness or other paper or
document, unless requested in writing so to do by the holders of not
less than a majority in aggregate principal amount of the Notes then
outstanding (determined as provided in Section 9.4 or 9.5); provided,
however, that if the payment within a reasonable time to the Trustee of
the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable indemnity
against such expenses or liability as a condition to so proceeding. The
reasonable expense of every such examination shall be paid by the
Company or, if paid by the Trustee, shall be repaid by the Company upon
demand; and
(g) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys. The Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION VIII.3 No responsibility for recitals, etc. The
recitals contained herein and in the Notes (other than the certificate of
authentication on the Notes) shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for the correctness of the same. The
Trustee makes no representation as to the validity or sufficiency of this
Indenture or of the Notes. The Trustee shall not be accountable for the use or
application by the Company of any of the Notes or of the proceeds of such Notes,
or for the use or application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture, or for the use or application
of any moneys received by any Paying Agent other than the Trustee. The Trustee
shall not be responsible for (or accountable for) determining whether
transferees are QIBs, non-U.S. Persons within the meaning of Regulation S or
Institutional Accredited Investors, and the Trustee shall be entitled to
conclusively rely upon Officers' Certificates, certificates of transferees and
Opinions of Counsel relating to the same and whether the Notes are Restricted
Securities.
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SECTION VIII.4 Trustee, Paying Agent or Note Registrar may own
Notes. The Trustee, any Paying Agent or Note Registrar, in its individual or any
other capacity, may become the owner or pledgee of Notes with the same rights it
would have if it were not Trustee, Paying Agent or Note Registrar.
SECTION VIII.5 Moneys received by Trustee to be held in trust
without interest. Subject to the provisions of Section 13.6 and Article III, all
moneys received by the Trustee shall, until used or applied as herein provided,
be held in trust for the purposes for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any moneys received by it hereunder
except such as it may agree with the Company to pay thereon.
SECTION VIII.6 Compensation and expenses of Trustee. The
Company covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to such compensation as the Company and the Trustee
shall from time to time agree in writing, and the Company will pay or reimburse
the Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee (including as the Paying Agent and the
Note Registrar) in connection with the acceptance or administration of its trust
under this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence or bad faith. The Company also covenants to indemnify the Trustee and
any director, officer, employee or agent of the Trustee for any loss, liability
or expense (including without limitation costs and expenses of litigation, and
of investigation, counsel fees, damages, judgments and amounts paid in
settlement) incurred in connection with any act or omission on the part of the
Trustee with respect to this Indenture or the Notes (other than any loss,
liability or expense incurred by reason of willful misconduct, bad faith or
negligence of the Trustee in the performance of its duties hereunder). The
obligations of the Company under this Section 8.6 to compensate the Trustee and
to pay or reimburse the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be secured
by a lien prior to that of the Notes upon all property and funds held or
collected by the Trustee as such, except funds held in trust by the Trustee
pursuant to Article XIII for the payment of principal of or premium, if any, or
interest on particular Notes.
SECTION VIII.7 Right of Trustee to rely on Officers'
Certificate where no other evidence specifically prescribed. Subject to the
provisions of Section 8.1, whenever in the administration of the provisions of
this Indenture, the Trustee shall deem it necessary or desirable that a matter
to be proved or established prior to taking, suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee, and such Certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
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SECTION VIII.8 Conflicting interest of Trustee. The Trustee
shall be subject to the provisions of Section 310(b) of the Trust Indenture Act
notwithstanding that this Indenture may not be qualified under the Trust
Indenture Act. If the Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. Nothing herein
shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of Section 310(b) of the Trust
Indenture Act.
SECTION VIII.9 Requirements for eligibility of Trustee. The
Trustee hereunder shall at all times be a corporation organized and doing
business under the laws of the United States of America or any state or
territory thereof or of the District of Columbia authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus (computed
in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least
$50,000,000, subject to supervision or examination by Federal, state,
territorial, or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 8.9, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. This Indenture shall always have a Trustee who
satisfies the requirements of Sections 310(a)(1) and (5) of the Trust Indenture
Act. If at any time the Trustee shall cease to be eligible in accordance with
the provisions of this Section 8.9, the Trustee shall resign immediately in the
manner and with the effect specified in this Article.
SECTION VIII.10 Resignation or removal of Trustee. (a) No
resignation or removal of the Trustee and no appointment of a successor trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 8.11.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by the holders of a
majority in principal amount of the outstanding Notes by written notice,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section
310(b) of the Trust Indenture Act with respect to the Notes after
written request therefor by the Company or by any Noteholder who has
been a bona fide holder of a Note or Notes for at least six months, or
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(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail to resign
after written request therefor by the Company or by any such
Noteholder, or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to the provisions of Section 7.14, any Noteholder who has been a bona
fide holder of a Note or Notes for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Trustee
for any cause, the Company shall promptly appoint a successor trustee. If,
within one year after such resignation, removal or incapacity, or the occurrence
of such vacancy, a successor trustee shall be appointed by the holders of a
majority in principal amount of the Notes outstanding by written notice
delivered to the Company and the retiring trustee, the successor trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor trustee and supersede the successor trustee appointed by the Company.
If no successor trustee shall have been so appointed by the Company or the
Noteholders and accepted appointment in the manner hereinafter provided, subject
to Section 7.14, any Noteholder who has been a bona fide holder of a Note for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Noteholders as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor trustee and the address of its
principal Corporate Trust Office.
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SECTION VIII.11 Acceptance by successor to Trustee; notice of
succession of a Trustee. Any successor trustee appointed as provided in Section
8.10 shall execute, acknowledge and deliver to the Company and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, duties, trusts and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee herein; but, nevertheless, on the written request of the
Company or of the successor trustee, the trustee ceasing to act shall, upon
payment of any amounts then due it pursuant to the provisions of Section 8.6,
execute and deliver an instrument transferring to such successor trustee all the
rights and powers of the trustee so ceasing to act. Upon request of any such
successor trustee, the Company shall execute any and all instruments in writing
for more fully and certainly vesting in and confirming to such successor trustee
all such rights and powers. Any trustee ceasing to act shall, nevertheless,
retain a lien upon all property of funds held or collected by such Trustee to
secure any amounts then due it pursuant to the provisions of Section 8.6.
No successor trustee shall accept appointment as provided in
this Section 8.11 unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 8.8 and eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as
provided in this Section 8.11, the Company shall mail to the Noteholders by
first-class mail notice thereof. If the Company fails to mail such notice within
30 days after acceptance of appointment by the successor trustee, the successor
trustee shall, in its discretion, cause such notice to be mailed at the expense
of the Company.
SECTION VIII.12 Successor to Trustee by merger, consolidation
or succession to business. Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger or conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Notes shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such Notes
so authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor
trustee; provided, however, that the right to adopt the certificate of
authentication of any predecessor trustee or authenticate Notes in the name of
any predecessor trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
SECTION VIII.13 Limitations on rights of Trustee as a
creditor. If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Notes), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
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SECTION VIII.14 Notice of Defaults. If a Default occurs and is
continuing, the Trustee shall mail to Noteholders a notice of the Default within
90 days after it occurs. Except in the case of a Default in payment on any Note
(including the failure to make a mandatory redemption, if any, pursuant
thereto), the Trustee may withhold the notice if and so long as a committee of
its Responsible Officers in good faith determines that withholding the notice is
in the interests of Holders.
ARTICLE IX
CONCERNING THE NOTEHOLDERS
SECTION IX.1 Evidence of action by Noteholders. Whenever in
this Indenture it is provided that the holders of a specified percentage in
aggregate principal amount of the Notes may take any action (including the
making of any demand or request, the giving of any notice, consent, or waiver or
the taking of any other action), the fact that the holders of such specified
percentage, determined as of the time such action was taken or, if a record date
was set with respect thereto pursuant to Section 9.5, as of such record date,
have joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by Noteholders in person or by agent or
proxy appointed in writing, or (b) by the record of the holders of Notes voting
in favor thereof at any meeting of Noteholders duly called and held in
accordance with the provisions of Article X, or (c) by a combination of such
instrument or instruments and any such record of such a meeting of Noteholders.
SECTION IX.2 Proof of execution of instruments and of holding
of Notes. Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof of the
execution of any instrument by a Noteholder or his agent or proxy shall be
sufficient if made in accordance with the provisions set forth herein.
The ownership of Notes shall be proved by the Note Register,
or by a certificate of the registrar thereof.
The record of any Noteholders' meeting shall be proved in the
manner provided in Section 10.5.
SECTION IX.3 Who may be deemed owners of Note. Prior to due
presentation for registration of transfer, the Company, the Trustee, any Paying
Agent, and any Note Registrar may deem and treat the person in whose name any
Note shall be registered in the Note Register as the absolute owner of such Note
(whether or not such Note shall be overdue and notwithstanding any notation of
ownership or other writing thereon) for the purposes of receiving payment of or
on account of the principal of and premium, if any, and interest on such Note,
for all purposes; and neither the Company nor the Trustee nor any Paying Agent
nor any Note Registrar shall be affected by any notice to the contrary. All such
payments so made to, or upon the order of, any such holder, shall be valid and,
to the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Note.
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SECTION IX.4 Notes owned by Company or controlled by
controlling persons disregarded for certain purposes. In determining whether the
holders of the requisite aggregate principal amount of Notes have concurred in
any demand, direction, request, notice, consent, waiver or other action under
this Indenture, Notes which are owned by the Company or any other obligor on the
Notes or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any other obligor on
the Notes shall be disregarded and deemed not to be outstanding for the purpose
of any such determination, provided that for the purposes of determining whether
the Trustee shall be protected in relying on any such demand, direction,
request, notice, consent or waiver, only Notes which the Note Register states
are so owned shall be so disregarded. Notes so owned which have been pledged in
good faith may be regarded as outstanding for the purposes of this Section 9.4,
if, subject to Section 8.2, any pledgee shall demonstrate to the Trustee the
pledgee's right to vote such Notes and that the pledgee is not a person directly
or indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In case of a dispute as to
such right, any decision by the Trustee taken upon the advice of counsel shall
be full protection to the Trustee.
SECTION IX.5 Record date for action by Noteholders. Whenever
in this Indenture it is provided that holders of a specified percentage in
aggregate principal amount of the Notes may take any action (including the
making of any demand or request, the giving of any direction, notice, consent or
waiver or the taking of any other action), other than any action taken at a
meeting of Noteholders called pursuant to Article X, the Company, pursuant to a
resolution of its Board of Directors, or the holders of at least ten percent in
aggregate principal amount of the Notes then outstanding, may fix the record
date by mailing notice thereof (the record date so fixed to be a Business Day
not less than 15 nor more than 20 days after the date on which such written
notice shall be given) to the Trustee. If a record date is fixed according to
this Section 9.5, only persons shown as Noteholders in the Note Register at the
close of business on the record date so fixed shall be entitled to take the
requested action and the taking of any such action by the holders on the record
date of the required percentage of the aggregate principal amount of the Notes
shall be binding on all Noteholders, provided that the taking of the requested
action by the holders on the record date of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action shall have been evidenced to the Trustee, as provided in Section
9.1, not later than 180 days after such record date.
SECTION IX.6 Instruments executed by Noteholders bind future
holders. At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 9.1, of the taking of any action by the holders of the
percentage in aggregate principal amount of the Notes specified in this
Indenture in connection with such action, any holder of a Note which is shown by
the evidence to be included in the Notes the holders of which have consented to
such action may, by filing written notice with the Trustee at its principal
corporate trust office and upon proof of holding as provided in Section 9.2,
revoke such action so far as concerns such Note. Except as aforesaid any such
action taken by the holder of any Note and any direction, demand, request,
waiver, consent, vote or other action of the holder of any Note which by any
provisions of this Indenture is required or permitted to be given shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Note, and of any Note issued in lieu thereof, irrespective of whether or
not any notation in regard thereto is made upon such Note. Any action taken by
the holders of the percentage in aggregate principal amount of the Notes
specified in this Indenture in connection with such action shall be conclusively
binding upon the holders of all the Notes.
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ARTICLE X
NOTEHOLDERS MEETINGS
SECTION X.1 Purposes for which meetings may be called. A
meeting of Noteholders may be called at any time and from time to time pursuant
to the provisions of this Article X for any of the following purposes:
(i) to give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to consent to the waiving
of any default hereunder and its consequences, or to take any other
action authorized to be taken by Noteholders pursuant to any of the
provisions of Article VII;
(ii) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article VIII;
(iii) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section
11.2; or
(iv) to take any other action authorized to be taken by or
on behalf of the holders of any specified aggregate principal amount of
the Notes under any other provisions of this Indenture or under
applicable law.
SECTION X.2 Manner of calling meetings; record date. The
Trustee may at any time call a meeting of Noteholders to take any action
specified in Section 10.1, to be held at such time and at such place in The City
of New York, State of New York, as the Trustee shall determine. Notice of every
meeting of the Noteholders, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
mailed not less than 30 nor more than 60 days prior to the date fixed for the
meeting to such Noteholders at their addresses as such addresses appear in the
Note Register. For the purpose of determining Noteholders entitled to notice of
any meeting of Noteholders, the Trustee shall fix in advance a date as the
record date for such determination, such date to be a business day not more than
ten days prior to the date of the mailing of such notice as hereinabove
provided. Only persons in whose name any Note shall be registered in the Note
Register at the close of business on a record date fixed by the Trustee as
aforesaid, or by the Company or the Noteholders as in Section 10.3 provided,
shall be entitled to notice of the meeting of Noteholders with respect to which
such record date was so fixed.
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SECTION X.3 Call of meeting by Company or Noteholders. In case
at any time the Company, pursuant to a resolution of its Board of Directors or
the holders of at least ten percent in aggregate principal amount of the Notes
then outstanding, shall have requested the Trustee to call a meeting of
Noteholders to take any action authorized in Section 10.1 by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed notice of such meeting within 20
days after receipt of such request, then the Company or the holders of Notes in
the amount above specified, as the case may be, may fix the record date with
respect to, and determine the time and the place in The City of New York for,
such meeting and may call such meeting to take any action authorized in Section
10.1, by mailing notice thereof as provided in Section 10.2. The record date
fixed as provided in the preceding sentence shall be set forth in a written
notice to the Trustee and shall be a business day not less than 15 nor more than
20 days after the date on which such notice is sent to the Trustee.
SECTION X.4 Who may attend and vote at meetings. Only persons
entitled to receive notice of a meeting of Noteholders and their respective
proxies duly appointed by an instrument in writing shall be entitled to vote at
such meeting. The only persons who shall be entitled to be present or to speak
at any meeting of Noteholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel. When a determination of
Noteholders entitled to vote at any meeting of Noteholders has been made as
provided in this Section, such determination shall apply to any adjournments
thereof.
SECTION X.5 Manner of voting at meetings and record to be
kept. The vote upon any resolution submitted to any meeting of Noteholders shall
be by written ballots on each of which shall be subscribed the signature of the
Noteholder or proxy casting such ballot and the identifying number or numbers of
the Notes held or represented in respect of which such ballot is cast. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting. A record in duplicate of
the proceedings of each meeting of Noteholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was mailed as
provided in Section 10.2. The record shall show the identifying numbers of the
Notes voting in favor of or against any resolution. Each counterpart of such
record shall be signed and verified by the affidavits of the permanent chairman
and secretary of the meeting and one of the counterparts shall be delivered to
the Company and the other to the Trustee to be preserved by the Trustee.
Any counterpart record so signed and verified shall be
conclusive evidence of the matters therein stated and shall be the record
referred to in clause (b) of Section 9.1.
SECTION X.6 Exercise of rights of Trustee and Noteholders not
to be hindered or delayed. Nothing in this Article X contained shall be deemed
or construed to authorize or permit, by reason of any call of a meeting of
Noteholders or any rights expressly or impliedly conferred hereunder to make
such call, any hinderance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Noteholders under any of the
provisions of this Indenture or of the Notes.
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ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION XI.1 Purposes for which supplemental Indentures may be
entered into without consent of Noteholders. The Company, when authorized by a
resolution of the Board of Directors, and the Trustee may from time to time and
at any time, without notice to or the consent of any Noteholders, enter into an
indenture or indentures supplemental hereto (which shall comply with the
provisions of the Trust Indenture Act as then in effect) for one or more of the
following purposes:
(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
herein and in the Notes pursuant to Article XII;
(b) to add to the covenants of the Company such further
covenants, restrictions or conditions as its Board of Directors shall
consider to be for the protection of the holders of Notes, and to make
the occurrence, or the occurrence and continuance, of a default in any
of such additional covenants, restrictions or conditions a default or
an Event of Default permitting the enforcement of all or any of the
several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter
or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;
(c) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture or any
supplemental indenture, provided that such actions shall not be
materially inconsistent with the terms of this Indenture and shall not
adversely affect the interests of the holders of the Notes;
(d) to provide for the issuance under this Indenture of Notes,
whether or not then outstanding, in coupon form (including signatures
registrable as to principal only) and to provide for exchangeability of
such Notes with Notes issued hereunder in fully registered form and to
make all appropriate changes for such purpose;
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act;
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(f) to provide for the issuance of the Exchange Notes (which
will have terms identical in all material respects to the Initial Notes
except that the transfer restrictions contained in the Initial Notes
will be modified or eliminated, as appropriate, and the Exchange Notes
will not have provisions with respect to interest rate increases as
provided in the Registration Rights Agreement), and which will be
treated together with any outstanding Initial Notes as a single class
of Notes under the Indenture.
The Trustee is hereby authorized to join with the Company in
the execution and delivery of any such supplemental indenture, to make any
further appropriate agreement and stipulations which may be therein contained
and to accept the conveyance, transfer, mortgage, pledge or assignment of any
property thereunder, provided that if any such supplemental indenture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, the Trustee may in its discretion, but shall not be obligated to,
enter into such supplemental indenture.
Any supplemental indenture authorized by the provisions of
this Section 11.1 may be executed by the Company and the Trustee without notice
to or the consent of the holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 11.2.
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SECTION XI.2 Modification of Indenture with consent of holders
of 51 percent in principal amount of Notes. With the consent (evidenced as
provided in Section 9.1) of the holders of not less than 51 percent in aggregate
principal amount of the Notes at the time outstanding (determined as provided in
Section 9.4), or, if a record date is set with respect to such consent in
accordance with Section 9.5, as of such record date, the Company, when
authorized by a resolution of its Board of Directors, and the Trustee may from
time to time and at any time enter into an indenture or indentures supplemental
hereto (which shall comply with the provisions of the Trust Indenture Act as
then in effect) for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights of the holders
of the Notes; provided, however, that without the consent of the holder of each
outstanding Note, no such supplemental indenture shall (i) change the Stated
Maturity of the principal of, or any installment of interest on, any Note, or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the coin or currency in
which the principal of any Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption, on or
after the redemption date); (ii) amend, change or modify the obligation of the
Company to make and consummate a Change in Control Offer in the event of a
Change in Control or make and consummate the Offer with respect to any Asset
Sales or modify any of the provisions or definitions with respect thereto; (iii)
reduce the percentage in principal amount of outstanding Notes, the consent of
whose holders is required for any such supplemental indenture or the consent of
whose holders is required for any waiver of compliance in this Indenture or
certain Defaults in this Indenture and their consequences provided for in this
Indenture or with respect to any Guarantee; (iv) modify any of the provisions
relating to supplemental indentures requiring the consent of holders or relating
to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase the percentage of outstanding Notes required for such actions
or to provide that certain other provisions of this Indenture cannot be modified
or waived without the consent of the holder of each Note affected thereby; (v)
except as otherwise permitted under Article XII, consent to the assignment or
transfer by the Company or any Guarantor of any of their rights and obligations
under this Indenture; or (vi) modify any of the provisions of Article III or any
Guarantee in a manner adverse to the holders of the Notes.
Upon the request of the Company, accompanied by a copy of a
resolution of its Board of Directors certified by the Secretary or an Assistant
Secretary of the Company authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Noteholders as aforesaid, the Trustee shall join with the Company in the
execution and delivery of such supplemental indenture, provided that if such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, the Trustee may in its discretion, but shall
not be obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Noteholders
under this Section 11.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
Promptly after the execution and delivery by the Company and
the Trustee of any supplemental indenture pursuant to the provisions of this
Section 11.2, the Company shall mail a notice to the Noteholders, setting forth
in general terms the substance of such supplemental indenture. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture. Copies
of any supplemental indenture shall be available for inspection by any
Noteholder at the principal corporate trust office of the Trustee.
SECTION XI.3 Effect of supplemental indentures. Upon the
execution and delivery of any supplemental indenture pursuant to the provisions
of this Article XI, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitation of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Notes shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and amendments,
and all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any and
all purposes.
SECTION XI.4 Conformity with Trust Indenture Act. From the
date this Indenture is qualified under the Trust Indenture Act, every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
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SECTION XI.5 Notes may bear notation of changes by
supplemental indentures. Notes authenticated and delivered after the execution
and delivery of any supplemental indenture pursuant to the provisions of this
Article XI, or after any action taken at a Noteholders' meeting pursuant to
Article X, may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture or as to any action taken at any
such meeting. If the Company or the Trustee shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Board of Directors
of the Company, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Notes then outstanding. Failure to
make the appropriate notation or issue a new Note shall not affect the validity
and effect of such supplemental indenture or Noteholders' meeting.
SECTION XI.6 Officers' Certificate and Opinion of Counsel. In
connection with the execution of any supplemental indenture, the Trustee shall
receive and, subject to the provisions of Sections 8.1 and 8.2, shall be fully
protected in relying upon an Officers' Certificate and an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized and
permitted by this Indenture (including, without limitation, Section 11.7) as
conclusive evidence that any such supplemental indenture complies with the
provisions of this Article XI.
SECTION XI.7 Modification of Indenture with consent of holders
of Senior Indebtedness. No amendment, supplement or other modification may be
made to any provision of this Indenture (including any definition included in
Article I or elsewhere herein) that adversely affects the rights under Article
III or under any other provision of this Indenture of any holder of Senior
Indebtedness unless the holders of Senior Indebtedness expressly consent in
writing thereto.
ARTICLE XII
CONSOLIDATION, MERGER AND SALE
SECTION XII.1 Merger and Sale of Assets, etc. (a) The Company
shall not, in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other Person or sell, assign, convey,
transfer or lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to any Person or group of affiliated
Persons, or permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions, in the aggregate, would result
in a sale, assignment, transfer, lease or disposal of all or substantially all
of the properties and assets of the Company and its Subsidiaries on a
consolidated basis to any other Person or group of affiliated Persons, unless at
the time and after giving effect thereto:
(i) either (A) the Company shall be the continuing
corporation, or (B) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer, lease or disposition the
properties and assets of the Company, substantially as an entirety (the
"Surviving Entity") shall be a corporation duly organized and validly
existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall, in either case,
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and hereunder, and this
Indenture shall remain in full force and effect;
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(ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or a
Subsidiary which becomes the obligation of the Company or any of its
Subsidiaries in connection with or as a result of such transaction as
having been incurred at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction
on a pro forma basis, the Consolidated Net Worth of the Company (or the
Surviving Entity if the Company is not the continuing obligor
hereunder) is at least equal to the Consolidated Net Worth of the
Company immediately before such transaction;
(iv) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or a
Subsidiary which becomes the obligation of the Company or any of its
Subsidiaries in connection with or as a result of such transaction as
having been incurred at the time of such transaction), the Company (or
the Surviving Entity if the Company is not the continuing obligor
hereunder) could incur $1.00 of additional Indebtedness under Section
5.9 (other than Permitted Indebtedness);
(v) each Guarantor, if any, unless it is the other party
to the transactions described above, shall have by supplemental
indenture confirmed that its Guarantee of the Notes shall apply to such
person's obligations hereunder and the Notes; and
(vi) the Company or the Surviving Entity shall have
delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease
or disposition and such supplemental indenture comply with the terms of
this Indenture.
(b) Each Guarantor, if any (other than any Subsidiary whose
Guarantee is being released pursuant to Section 5.16 as a result of such
transaction), shall not, and the Company will not permit a Guarantor to, in a
single transaction or through a series of related transactions, merge or
consolidate with or into any other corporation or other entity (other than the
Company or any Guarantor), or sell, assign, convey, transfer, lease or otherwise
dispose of its properties and assets on a consolidated basis substantially as an
entirety to any entity unless
(i) either (A) such Guarantor shall be the continuing
corporation or partnership or (B) the entity (if other than such
Guarantor) formed by such consolidation or into which such Guarantor is
merged or the entity which acquires by sale, assignment, conveyance,
transfer, lease or disposition the properties and assets of such
Guarantor substantially as an entirety shall be a corporation or
partnership organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia and shall
expressly assume by an indenture supplemental to this Indenture,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of such Guarantor under the Notes and
hereunder;
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(ii) immediately before and immediately thereafter (and
treating any Indebtedness not previously an obligation of the Company
or a Subsidiary which becomes the obligation of the Company or any of
its Subsidiaries in connection with or as a result of such transaction
as having been incurred at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing; and
(iii) such Guarantor shall have delivered to the Trustee
an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, conveyance, transfer,
lease or disposition and such supplemental indenture comply with this
Indenture, and thereafter all obligations of the predecessor shall
terminate.
(c) Notwithstanding the foregoing, any Wholly Owned Subsidiary
may (i) merge or consolidate with or into any other Wholly Owned Subsidiary or
the Company or (ii) sell, assign, convey, transfer, lease, or otherwise dispose
of all or substantially all of its properties and assets to any other Wholly
Owned Subsidiary or the Company; provided, that (x) any Person surviving any
such merger or consolidation with a Guarantor or which acquires substantially
all of the assets of any Guarantor (the "Acquisition Survivor") shall expressly
assume by a supplemental indenture or guarantee executed and delivered to the
Trustee, in form satisfactory to the Trustee, any obligations of such Subsidiary
to guarantee the obligations owing hereunder; and (y) the Acquisition Survivor
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that the transaction and the supplemental guarantee or
indenture executed in connection therewith comply with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with.
SECTION XII.2 Successor Substituted. Upon any consolidation or
merger, or any sale, assignment, conveyance, transfer, lease or disposition of
all or substantially all of the properties and assets of the Company or any
Guarantor in accordance with the immediately preceding paragraphs, the successor
Person formed by such consolidation or into which the Company or such Guarantor,
as the case may be, is merged or the successor Person to which such sale,
assignment, conveyance, transfer, lease or disposition is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
or such Guarantor, as the case may be, under this Indenture and/or the
Guarantees, as the case may be, with the same effect as if such successor had
been named as the Company or such Guarantor, as the case may be, herein and/or
in the Guarantees, as the case may be. When a successor assumes all the
obligations of its predecessor under this Indenture, the Notes or a Guarantee,
as the case may be, the predecessor shall be released from those obligations;
provided that in the case of a transfer by lease, the predecessor shall not be
released from the payment of principal and interest on the Notes or a Guarantee,
as the case may be.
SECTION XII.3 Opinion of Counsel. The Trustee, subject to the
provisions of Sections 8.1 and 8.2, may receive and rely on an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale or
conveyance, and any such assumption, complies with the provisions of this
Article XII.
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ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
SECTION XIII.1 Legal Defeasance and Covenant Defeasance of the
Notes.
(a) The Company may, at its option by Board resolution,
at any time, with respect to the Notes, elect to have either paragraph (b) or
paragraph (c) below be applied to the outstanding Notes upon compliance with the
conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of
the option applicable to this paragraph (b), the Company and any Guarantor shall
be deemed to have been released and discharged from its obligations with respect
to the outstanding Notes on the date the conditions set forth below are
satisfied (hereinafter, "legal defeasance"). For this purpose, such legal
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Notes, which shall
thereafter be deemed to be "outstanding" only for the purposes of the Sections
of and matters under this Indenture referred to in (i) and (ii) below, and to
have satisfied all its other obligations under such Notes and this Indenture
insofar as such Notes are concerned, except for the following which shall
survive until otherwise terminated or discharged hereunder: (i) the rights of
Holders of outstanding Notes to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due and (ii) obligations listed in Section 13.3.
(c) Upon the Company's exercise under paragraph (a) of
the option applicable to this paragraph (c), the Company and any Guarantor shall
be released and discharged from its obligations under any covenant contained in
Article XII and in Sections 4.5 and 5.3 through 5.22 with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter
be deemed to be not "outstanding" for the purpose of any direction, waiver,
consent or declaration or act of Holders (and the consequences of any thereof)
in connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the outstanding Notes, the Company (each Guarantor,
if any) may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 7.1(c), nor shall any event
referred to in Section 7.1(d) or 7.1(e) thereafter constitute a Default or an
Event of Default thereunder but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby.
(d) The following shall be the conditions to application
of either paragraph (b) or paragraph (c) above to the outstanding Notes:
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(i) The Company shall have irrevocably deposited in
trust with the Trustee, pursuant to an irrevocable trust and security
agreement in form and substance satisfactory to the Trustee, cash or
U.S. Government Obligations maturing as to principal and interest at
such times, or a combination thereof, in such amounts as are
sufficient, without consideration of the reinvestment of such interest
and after payment of all Federal, state and local taxes or other
charges or assessments in respect thereof payable by the Trustee, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof (in form and
substance reasonably satisfactory to the Trustee) delivered to the
Trustee, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the dates on which any such payments are due and
payable in accordance with the terms of this Indenture and of the
Notes;
(ii) (A) No Event of Default shall have occurred or be
continuing on the date of such deposit, and (B) no Default or Event of
Default under Section 7.1(f) or 7.1(g) shall occur on or before the
123rd day after the date of such deposit;
(iii) Such deposit will not result in a Default under this
Indenture or a breach or violation of, or constitute a default under,
any other instrument or agreement to which the Company or any Guarantor
is a party or by which it or its property is bound;
(iv) In the case of a legal defeasance under paragraph
(b) above, the Company has delivered to the Trustee an Opinion of
Counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or (B) since
the date of this Indenture there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to
federal income tax on the same amounts and in the same manner and at
the same times as would have been the case if such deposit, defeasance
and discharge had not occurred; and, in the case of a covenant
defeasance under paragraph (c) above, the Company shall deliver to the
Trustee an Officers' Certificate and an Opinion of Counsel, in form and
substance reasonably satisfactory to the Trustee, to the effect that
Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred;
(v) The Holders shall have a perfected security interest
under applicable law in the cash or U.S. Government Obligations
deposited pursuant to Section 13(d)(i) above;
(vi) The Company shall have delivered to the Trustee an
Opinion of Counsel, in form and substance reasonably satisfactory to
the Trustee, to the effect that, after the passage of 123 days
following the deposit, the trust funds will not be subject to any
applicable bankruptcy, insolvency, reorganization or similar law
affecting creditors' rights generally;
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(vii) such defeasance shall not cause the Trustee to have
a conflicting interest with respect to any securities of the Company or
any Guarantor; and
(viii) The Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent specified herein relating to the defeasance
contemplated by this Section 13.1 have been complied with; provided,
however, that no deposit under clause (d)(i) above shall be effective
to terminate the obligations of the Company or any Subsidiary Guarantor
under the Notes or this Indenture prior to 123 days following any such
deposit.
In connection with the issuance of debt securities the
proceeds of which will be used to redeem all the Notes then outstanding, none of
Sections 5.9, 5.10 and 5.14 shall be violated by the issuance of such debt
securities to the extent the Company complies with all of the provisions of this
Section 13.1(d) other than Section 13.1(d)(ii)(B).
SECTION XIII.2 Termination of Obligations upon Cancellation of
the Notes. In addition to the Company's rights under Section 13.1, the Company
may terminate all of its obligations under this Indenture (subject to Section
13.3) when:
(a) (i) all Notes theretofore authenticated and delivered
(other than Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.7) have been
delivered to the Trustee for cancellation;
(ii) the Company has paid or caused to be paid all other
sums payable hereunder and under the Notes by the Company; and
(iii) the Company has delivered to the Trustee an
Officers' Certificate, stating that all conditions precedent specified
herein relating to the satisfaction and discharge of this Indenture
have been complied with; or
(b) (i) the Notes not previously delivered to the Trustee for
cancellation will have become due and payable or are by their terms to
become due and payable within one year or are to be called for
redemption under arrangements satisfactory to the Trustee upon delivery
of notice; (ii) the Company will have irrevocably deposited with the
Trustee, as trust funds, cash, in an amount sufficient to pay principal
of and interest on the outstanding Notes, to maturity or redemption, as
the case may be; (iii) such deposit will not result in a breach or
violation of, or constitute a default under, any agreement or
instrument pursuant to which the Company or any Subsidiary is a party
or by which it or its property is bound; and (iv) and the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions related to such defeasance
have been complied with.
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SECTION XIII.3 Survival of Certain Obligations.
Not-withstanding the satisfaction and discharge of this Indenture and of the
Notes referred to in Section 13.1 or 13.2, the respective obligations of the
Company, and the Trustee under Sections 2.4, 2.5, 2.7, 2.8, 2.9, 2.10, 2.11,
5.2, 6.1, 7.8, 7.14, 8.6, 8.10, 13.5, 13.6 and 13.7 and shall survive until the
Notes are no longer outstanding, and thereafter the obligations of the Company
and the Trustee under Sections 7.14, 8.6, 13.5, 13.6 and 13.7 shall survive.
Nothing contained in this Article XIII shall abrogate any of the obligations or
duties of the Trustee under this Indenture.
SECTION XIII.4 Acknowledgment of Discharge by Trustee. Subject
to Section 13.7, after (i) the conditions of Section 13.1 or 13.2 have been
satisfied, (ii) the Company has paid or caused to be paid all other sums payable
hereunder by the Company and (iii) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent referred to in clause (i) above relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee upon written request shall acknowledge in writing the discharge of the
Company's obligations under this Indenture except for those surviving
obligations specified in Section 13.3.
SECTION XIII.5 Application of Trust Assets. The Trustee shall
hold any cash or U.S. Government Obligations deposited with it in the
irrevocable trust established pursuant to Section 13.1 or 13.2, as the case may
be. The Trustee shall apply the deposited cash or the U.S. Government
Obligations, together with earnings thereon, through the Paying Agent, in
accordance with this Indenture and the terms of the irrevocable trust agreement
established pursuant to Section 13.1 or 13.2, as the case may be, to the payment
of principal of, premium, if any, and interest on the Notes. The cash or U.S.
Government Obligations so held in trust and deposited with the Trustee in
compliance with Section 13.1 or 13.2, as the case may be, shall not be part of
the trust estate under this Indenture, but shall constitute a separate trust
fund for the benefit of all Holders entitled thereto.
SECTION XIII.6 Repayment to the Company; Unclaimed Money. Upon
termination of the trust established pursuant to Section 13.1 or 13.2, as the
case may be, the Trustee and the Paying Agent shall promptly pay to the Company
upon request any excess cash or U.S. Government Obligations held by them.
Additionally, if money for the payment of principal, premium, if any, or
interest remains unclaimed for six years, the Trustee and the Paying Agents will
pay the money back to the Company forthwith. After that, all liability of the
Trustee and such Paying Agents with respect to such money shall cease.
The Trustee and the Paying Agent shall pay to the Company upon
request, and, if applicable, in accordance with the irrevocable trust
established pursuant to Section 13.1 or 13.2, any cash or U.S. Government
Obligations held by them for the payment of principal of, premium, if any, or
interest on the Notes that remain unclaimed for two years after the date on
which such payment shall have become due. After payment to the Company, Holders
entitled to such payment must look to the Company for such payment as general
creditors unless an applicable abandoned property law designates another person.
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SECTION XIII.7 Reinstatement. If the Trustee or Paying Agent
is unable to apply any cash or U.S. Government Obligations in accordance with
Section 13.1 or 13.2 by reason of any legal proceeding or by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 13.1 or 13.2 until such time as the Trustee or
Paying Agent is permitted to apply all such cash or U.S. Government Obligations
in accordance with Section 13.1 or 13.2, as the case may be; provided that if
the Company makes any payment of principal of, premium, if any, or interest on
any Notes following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or the Paying Agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION XIV.1 Incorporators, stockholders, officers and
directors of Company or any Guarantor (other than the Company) exempt from
individual liability. No recourse under or upon any obligation, covenant or
agreement of this Indenture or any indenture supplemental hereto or of any Note,
or for any claim based thereon or otherwise in respect thereof, shall be had
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or any Guarantor (other than the Company) or
of any successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Indenture and the obligations issued hereunder
are solely corporate obligations, and that no such personal liability whatever
shall attach to, or is or shall be incurred by, the incorporators, stockholders,
officers or directors, as such, of the Company or any Guarantor (other than the
Company) or of any successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Notes or implied therefrom; and that any and all such personal liability of
every name and nature, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, stockholder, officer or director, as such, because of the creation
of the indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Notes or
implied therefrom are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issue of
such Notes.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION XV.1 Successors and assigns of Company bound by
Indenture. All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind its successors and
assigns, whether so expressed or not.
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SECTION XV.2 Acts of board, committee or officer of successor
corporation valid. Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
SECTION XV.3 Required notices or demand may be served by mail;
waiver. Any notice or demand which by any provisions of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Notes to or on the Company may be given or served by being deposited postage
prepaid (except as provided in Section 7.1(c)) by first class mail in a post
office letter box addressed (until another address is filed by the Company with
the Trustee for such purpose), as follows: Genesis Health Ventures, Inc., 148
West State Street, Kennett Square, Pennsylvania 19348, Attention: Michael R.
Walker, Chairman and Chief Executive Officer. Any notice, direction, request or
demand by any Noteholder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made at the principal
corporate trust office of the Trustee, The Bank of New York, 101 Barclay Street,
Floor 21 West, New York, New York, 10286 to the attention of Corporate Trust
Administration (or at such other address as the Trustee shall notify the Company
pursuant to Section 5.2).
Any notice to be given by the Trustee to any Senior
Representative shall be sent to such address as such Senior Representative may
from time to time designate to the Trustee in writing.
Any notice or communication to a Noteholder shall be mailed by
first-class mail to his address shown in the Note Register. Failure to mail a
notice or communication to a Noteholder or any defect in it shall not affect its
sufficiency with respect to other Noteholders. If a notice or communication is
mailed in the manner so provided within the time prescribed, it is duly given,
whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the person entitled to receive such notice,
either before or after the event or action relating thereto, and such waiver
shall be equivalent of such notice. Waivers of notice by Noteholders shall be
filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
SECTION XV.4 Indenture and Notes to be construed in accordance
with the laws of the State of New York. This Indenture and each Note shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION XV.5 Evidence of compliance with conditions
precedent. Upon any request or application by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such document is specifically required by any provision of this
Indenture relating to such particular application or demand, such statement of
compliance may be added to the more specifically required document, in which
case no additional certificate or opinion need be furnished.
<PAGE>
89
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the
Company may be based, insofar as it relates to legal matters, upon a certificate
or opinion of or representations by counsel, unless such officer knows that the
certificate or opinion or representations with respect to the matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of counsel may be based, insofar as it
relates to factual matters information with respect to which is in the
possession of the Company, upon the certificate, statement or opinion of or
representations by an officer or officers of the Company, unless such counsel
knows that the certificate, statement or opinion or representations with respect
to the matters upon which his certificate, statements or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate, statement or opinion of an officer of the
Company or of counsel may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of or representations by an accountant or firm of
accountants unless such officer or counsel, as the case may be, knows that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous. Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent.
SECTION XV.6 Payments due on Saturdays, Sundays and holidays.
In any case where the date of payment of interest on or principal of the Notes
or the date fixed for redemption or purchase of any Note shall not be a Business
Day, then payment of interest or principal and premium, if any, need not be made
on such date, but may be made on the next succeeding business day with the same
force and effect as if made on the date of payment or the date fixed for
redemption or purchase, and no interest shall accrue for the period after such
original date of payment or such original date fixed for redemption or purchase.
SECTION XV.7 Provisions required by Trust Indenture Act to
control. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture which
is required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act, such required provision shall control.
<PAGE>
90
SECTION XV.8 Provisions of this Indenture and Notes for the
sole benefit of the parties and the Noteholders. Nothing in this Indenture or in
the Notes, expressed or implied, shall give or be construed to give any person,
firm or corporation, other than the parties hereto and the holders of the Notes
and of the Senior Indebtedness, any legal or equitable right, remedy or claim
under or in respect of this Indenture, or under any covenant, condition or
provision herein contained, all its covenants, conditions and provisions being
for the sole benefit of the parties hereto and of the holders of the Notes and
of the Senior Indebtedness.
SECTION XV.9 Severability. In case any one or more of the
provisions contained in this Indenture or in the Notes shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Indenture or of such Notes, but this Indenture and such Notes shall be construed
as if such invalid or illegal or unenforceable provision had never been
contained herein or therein.
SECTION XV.10 Indenture may be executed in counterparts;
acceptance by Trustee. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument. The Bank of New York hereby
accepts the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.
SECTION XV.11 Article and Section headings. The Article and
Section references herein and in the Table of Contents are for convenience of
reference only and shall not affect the construction hereof.
<PAGE>
91
IN WITNESS WHEREOF, GENESIS HEALTH VENTURES, INC. has caused
this Indenture to be signed and acknowledged by its Chief Executive Officer, its
President or one of its vice presidents; and The Bank of New York has caused
this Indenture to be signed by one of its authorized officers, all as of the day
and year first written above.
GENESIS HEALTH VENTURES, INC.
By: /s/ George V. Hager, Jr.
---------------------------------
Name: George V. Hager, Jr.
Title: Senior Vice President and
Chief Financial Officer
THE BANK OF NEW YORK,
as trustee
By: /s/ Mary Jane Schmalzel
---------------------------------
Name: Mary Jane Schmalzel
Title: Vice President
<PAGE>
EXHIBIT A-1
[FORM OF FACE OF NOTE]
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET
FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES TO
OFFER, SELL, OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED
STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (D) OR (E)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE TERMS "UNITED
STATES," "OFFSHORE TRANSACTION," AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
A-1-1
<PAGE>
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT, FOR
PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THE ISSUE PRICE OF THIS NOTE IS
96.1598% OF ITS PRINCIPAL AMOUNT AT MATURITY, THE AMOUNT OF ORIGINAL
ISSUE DISCOUNT IS $38.402 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY,
THE ISSUE DATE IS DECEMBER 23, 1998 AND THE YIELD TO MATURITY IS
9 7/8%.
A-1-2
<PAGE>
No. ___________ $___________
CUSIP: _________
GENESIS HEALTH VENTURES, INC.
9f% Senior Subordinated Note due 2009
GENESIS HEALTH VENTURES, INC., a corporation duly organized
and validly existing under the laws of the Commonwealth of Pennsylvania (herein
called the "Company", which term includes any successor corporation under the
Indenture referred to on the reverse hereof), for value received hereby promises
to pay to ________________________, or registered assigns, the principal sum of
______________________________ United States dollars on January 15, 2009 at the
office or agency of the Company maintained for that purpose in New York, New
York, and to pay interest thereon at the rate per annum specified on this Note.
The Company will pay interest semi-annually on January 15 and July 15 of each
year (the "Interest Payment Date"). Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from December 23, 1998; provided that the first interest payment date
shall be July 15, 1999.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Note is registered at the close of business on
the Record Date for such interest, which shall be January 1 or July 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Notes, to
the extent lawful, shall forthwith cease to be payable to the Holder on such
Record Date, and may be paid to the Person in whose name this Note is registered
at the close of business on a special record date which date shall be the
fifteenth day next preceding the date fixed by the Company for the payment of
defaulted interest or the next succeeding Business Day if such date is not a
Business Day. The Company shall, by written notice to the Trustee, fix each such
special record date and payment date. At least 15 days before the special record
date, the Company (or the Trustee, in the name of and at the expense of the
Company) shall mail to each Holder, with a copy to the Trustee, a notice that
states the subsequent special record date, the payment date and the amount of
defaulted interest, and interest payable on such defaulted interest, if any, to
be paid.
A-1-3
<PAGE>
If this Note is a Global Note, all payments in respect of this
Note will be made to the Depository or its nominee in immediately available
funds in accordance with customary procedures established from time to time by
the Depository. If this Note is not a Global Note, payment of the principal of,
premium, if any, and interest on this Note will be made at the office or agency
of the Company maintained for that purpose in the City of New York, or at such
other office or agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Note Register. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium if any, and interest on
the Notes to all Senior Indebtedness, and provisions giving the holder of this
Note the right to require the Company to repurchase this Note upon any Change in
Control, in each case on the terms and subject to the limitations referred to on
the reverse hereof and as more fully specified in the Indenture. Such further
provisions shall for all purposes have the same effect as though fully set forth
at this place.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
the Trustee under the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, GENESIS HEALTH VENTURES, INC. has caused
this instrument to be duly executed under its corporate seal.
Dated:
GENESIS HEALTH VENTURES, INC.
By:_________________________
Name:
Title:
[Corporate Seal]
Attest:
____________________
Name:
Title:
A-1-4
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Notes described in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
as Trustee
By______________________
Authorized Officer
A-1-5
<PAGE>
[FORM OF REVERSE OF NOTE]
GENESIS HEALTH VENTURES, INC.
9-7/8% SENIOR SUBORDINATED NOTE DUE 2009
This Note is one of a duly authorized issue of Notes of the
Company known as its 9-7/8% Senior Subordinated Notes due 2009 (the "Initial
Notes"), limited to the aggregate principal amount of $125,000,000, all issued
or to be issued under and pursuant to an indenture, dated as of December 23,
1998 (herein referred to as the "Indenture"), duly executed and delivered
between the Company and The Bank of New York, trustee (herein referred to as the
"Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the respective rights, limitations of
rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Notes. The Notes include the Initial Notes and
the Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture. The Initial Notes and the Exchange Notes are treated as a single
class of securities under the Indenture.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Notes and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Indebtedness evidenced by the Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture), whether outstanding on the date of the Indenture or thereafter,
and this Note is issued subject to such provisions. Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee his attorney-in-fact for such purpose;
provided, however, that the indebtedness evidenced by this Note shall cease to
be so subordinate and subject in right of payment upon any defeasance of this
Note referred to in clause (a) or (b) of the next preceding paragraph.
A-1-6
<PAGE>
The Notes are subject to redemption, as a whole or in part, at
any time on or after January 15, 2004 at the option of the Company upon not less
than 30 nor more than 60 days' prior notice by first-class mail, at the election
of the Company, in amounts of $1,000 or an integral multiple of $1,000 at the
following redemption prices (expressed as a percentage of the principal amount)
if redeemed during the 12-month period beginning January 15 of the years
indicated below:
Redemption
Year Price
---- ----------
2004 ......................................... 104.937%
2005 ......................................... 102.468%
2006 ......................................... 101.234%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date. If less than all of
the Notes are to be redeemed, such portion of the Notes shall be redeemed pro
rata, by lot or by any other method the Trustee shall deem fair and reasonable.
In addition, at any time prior to January 15, 2002, the
Company, at its option, may use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Notes originally issued under the Indenture at a redemption price equal to
109.875% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the initial aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
30 days after the closing of the related Public Equity Offering and must
consummate such redemption within 60 days of the closing of the Public Equity
Offering.
Upon the occurrence of a Change in Control, each Holder may
require the Company to repurchase all or a portion of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, together
with accrued and unpaid interest to the date of repurchase.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company from any Asset Sale, which is not used to
prepay Senior Indebtedness or invested in properties or assets used in the
businesses of the Company, exceeds $10,000,000, the Company will be required to
apply such proceeds to the repayment of the Notes and certain other pari passu
Indebtedness.
In the case of any redemption of Notes, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Notes of record at the close of business on the relevant
Record Date referred to on the face hereof. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the date of redemption.
In the event of redemption of this Note in part only, a new
Note or Notes for the unredeemed portion hereof shall be issued in the name of
the Holder hereof upon the cancellation hereof.
A-1-7
<PAGE>
If an Event of Default shall occur and be continuing, the
principal amount of all the Notes may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders) as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
specified percentage in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company with certain provisions of the Indenture and certain past Defaults
under the Indenture and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company or
any Guarantor (in the event such Guarantor is obligated to make payments in
respect of the Notes), which is absolute and unconditional, to pay the principal
of, premium, if any, and interest on this Note at the times, place, and rate,
and in the coin or currency, herein prescribed, subject to the subordination
provisions of the Indenture.
In addition to the rights provided to Noteholders under the
Indenture, Holders of Initial Notes shall have all the rights set forth in the
Registration Rights Agreement among the Company and the Initial Purchasers on
behalf of Holders of the Initial Notes. Pursuant to the Registration Rights
Agreement, the Company will be obligated to consummate an exchange offer
pursuant to which the holder of this Note shall have the right to exchange this
Note for the Company's 9-7/8% Senior Subordinated Notes due 2009 (the "Exchange
Notes"), which have been registered under the Securities Act, in like principal
amount and having terms identical in all material respects as the Initial Notes
(except for terms with respect to transfer restrictions or interest rate
increases). The Holders of the Initial Notes shall be entitled to receive
certain additional interest payments in the event such exchange offer is not
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement. Additional interest which
may be payable pursuant to the Registration Rights Agreement shall be payable in
the same manner as set forth herein with respect to the stated interest. The
provision of the Registration Rights Agreement relating to such additional
interest are incorporated herein by reference and made a part hereof as if set
forth herein in full.
A-1-8
<PAGE>
The Company will furnish to any Noteholder upon written
request and without charge a copy of the Indenture and/or the Registration
Rights Agreement. Requests may be made to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square
Pennsylvania 19348
Attention: Corporate Secretary
A Noteholder shall register the transfer or exchange of Notes
in accordance with the Indenture. No service charge shall be made for any
registration of transfer or exchange or redemption of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Prior to and at the time of due presentment of this Note for
registration of transfer, the Company, the Trustee, the Paying Agent and any
agent of the Company or the Trustee may treat the Person in whose name this Note
is registered as the owner hereof for all purposes, whether or not this Note is
overdue, and neither the Company, the Trustee nor any agent shall be affected by
notice to the contrary.
All terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
A-1-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Note to
- --------------------------------------------------------------
- --------------------------------------------------------------
(Print or type name, address and zip code of assignee)
- --------------------------------------------------------------
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint ________________________ agent to transfer this Note on
the books of the Company. The agent may substitute another to act for him.
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date which is two years after the initial issuance of the
Notes, the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred outside the United States in an
offshore transaction within the meaning of Regulation S under the
Securities Act in compliance with Rule 904 and the undersigned has
furnished to the Trustee, the Registrar and the Company, such
certification, legal opinions and other information as the Trustee,
the Note Registrar and the Company may have reasonably required to
confirm that the proposed sale complies with Regulation S.
or
[ ] (c) this Note is being transferred other than in accordance with (a) or
(b) above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
A-1-10
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the
Noteholder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.12 of the Indenture shall have
been satisfied.
Dated:__________________ Signed: ________________________
(Sign exactly as name
appears on the other side
of this Note)
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A under
the Securities Act and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
under the Securities Act or has determined not to request such information and
that it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A under the Securities Act.
Dated: _______________________ _____________________________
NOTICE: To be executed by
an executive officer
A-1-11
<PAGE>
EXHIBIT A-2
[FORM OF FACE OF EXCHANGE NOTE]
No._____ $
CUSIP: __________
GENESIS HEALTH VENTURES, INC.
9 7/8% Senior Subordinated Note due 2009
GENESIS HEALTH VENTURES, INC., a corporation duly organized
and validly existing under the laws of the Commonwealth of Pennsylvania (herein
called the "Company", which term includes any successor corporation under the
Indenture referred to on the reverse hereof), for value received hereby promises
to pay to ________________________, or registered assigns, the principal sum of
_________________________________ United States dollars on January 15, 2009 at
the office or agency of the Company maintained for that purpose in New York, New
York, and to pay interest thereon at the rate per annum specified on this Note.
The Company will pay interest semi-annually on January 15 and July 15 of each
year (the "Interest Payment Date"). Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from December 23, 1998; provided that the first interest payment date
shall be July 15, 1999.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Note is registered at the close of business on
the Record Date for such interest, which shall be January 1 or July 1 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid, or duly provided for, and
interest on such defaulted interest at the interest rate borne by the Notes, to
the extent lawful, shall forthwith cease to be payable to the Noteholder on such
Record Date, and may be paid to the Person in whose name this Note is registered
at the close of business on a special record date which date shall be the
fifteenth day next preceding the date fixed by the Company for the payment of
defaulted interest or the next succeeding Business Day if such date is not a
Business Day. The Company shall, by written notice to the Trustee, fix each such
special record date and payment date. At least 15 days before the special record
date, the Company (or the Trustee, in the name of and at the expense of the
Company) shall mail to each Noteholder, with a copy to the Trustee, a notice
that states the subsequent special record date, the payment date and the amount
of defaulted interest, and interest payable on such defaulted interest, if any,
to be paid.
A-2-1
<PAGE>
If this Note is a Global Note, all payments in respect of this
Note will be made to the Depository or its nominee in immediately available
funds in accordance with customary procedures established from time to time by
the Depository. If this Note is not a Global Note, payment of the principal of,
premium, if any, and interest on this Note will be made at the office or agency
of the Company maintained for that purpose in the City of New York, or at such
other office or agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Note Register. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium if any, and interest on
the Notes to all Senior Indebtedness, and provisions giving the holder of this
Note the right to require the Company to repurchase this Note upon any Change in
Control, in each case on the terms and subject to the limitations referred to on
the reverse hereof and as more fully specified in the Indenture. Such further
provisions shall for all purposes have the same effect as though fully set forth
at this place.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
the Trustee under the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, GENESIS HEALTH VENTURES, INC. has caused
this instrument to be duly executed under its corporate seal.
Dated:
GENESIS HEALTH VENTURES, INC.
By:_________________________
Name:
Title:
[Corporate Seal]
Attest:
___________________
Name:
Title:
A-2-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Notes described in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
as Trustee
By______________________
Authorized Officer
A-2-3
<PAGE>
[FORM OF REVERSE OF EXCHANGE NOTE]
GENESIS HEALTH VENTURES, INC.
9 7/8% SENIOR SUBORDINATED NOTE DUE 2009
This Note is one of a duly authorized issue of Notes of the
Company known as its 9 7/8% Senior Subordinated Notes due 2009 (herein referred
to as the "Notes"), limited to the aggregate principal amount of $125,000,000,
all issued or to be issued under and pursuant to an indenture, dated as of
December 23, 1998 (herein referred to as the "Indenture"), duly executed and
delivered between the Company and The Bank of New York, trustee (herein referred
to as the "Trustee"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the respective rights, limitations
of rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Notes.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Notes and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Indebtedness evidenced by the Notes is, to the extent and
in the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture), whether outstanding on the date of the Indenture or thereafter,
and this Note is issued subject to such provisions. Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee his attorney-in-fact for such purpose;
provided, however, that the indebtedness evidenced by this Note shall cease to
be so subordinate and subject in right of payment upon any defeasance of this
Note referred to in clause (a) or (b) of the next preceding paragraph.
The Notes are subject to redemption, as a whole or in part, at
any time on or after January 15, 2004 at the option of the Company upon not less
than 30 nor more than 60 days' prior notice by first-class mail, at the election
of the Company, in amounts of $1,000 or an integral multiple of $1,000 at the
following redemption prices (expressed as a percentage of the principal amount)
if redeemed during the 12-month period beginning January 15 of the years
indicated below:
Redemption
Year Price
---- ----------
2004 ............................................. 104.937%
2005 ............................................. 102.468%
2006 ............................................. 101.234%
A-2-4
<PAGE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date. If less than all of
the Notes are to be redeemed, such portion of the Notes shall be redeemed pro
rata, by lot or by any other method the Trustee shall deem fair and reasonable.
In addition, at any time prior to January 15, 2002, the
Company, at its option, may use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Notes originally issued under the Indenture at a redemption price equal to
109.875% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the initial aggregate principal amount of Notes remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
30 days after the closing of the related Public Equity Offering and must
consummate such redemption within 60 days of the closing of the Public Equity
Offering.
Upon the occurrence of a Change in Control, each Noteholder
may require the Company to repurchase all or a portion of such Holder's Notes at
a purchase price in cash equal to 101% of the principal amount thereof, together
with accrued and unpaid interest to the date of repurchase.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company from any Asset Sale, which is not used to
prepay Senior Indebtedness or invested in properties or assets used in the
businesses of the Company, exceeds $10,000,000, the Company will be required to
apply such proceeds to the repayment of the Notes and certain other pari passu
Indebtedness.
In the case of any redemption of Notes, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Notes of record at the close of business on the relevant
Record Date referred to on the face hereof. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the date of redemption.
In the event of redemption of this Note in part only, a new
Note or Notes for the unredeemed portion hereof shall be issued in the name of
the Noteholder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Notes may be declared due and payable in the manner
and with the effect provided in the Indenture.
A-2-5
<PAGE>
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Noteholders) as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Noteholders under the Indenture
at any time by the Company and the Trustee with the consent of the Noteholders
of a specified percentage in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Noteholders
of specified percentages in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company with certain provisions of the Indenture and certain past Defaults
under the Indenture and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Note shall be conclusive and binding upon such
Noteholder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company or
any Guarantor (in the event such Guarantor is obligated to make payments in
respect of the Notes), which is absolute and unconditional, to pay the principal
of, premium, if any, and interest on this Note at the times, place, and rate,
and in the coin or currency, herein prescribed, subject to the subordination
provisions of the Indenture.
A Noteholder shall register the transfer or exchange of Notes
in accordance with the Indenture. No service charge shall be made for any
registration of transfer or exchange or redemption of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Prior to and at the time of due presentment of this Note for
registration of transfer, the Company, the Trustee, the Paying Agent and any
agent of the Company or the Trustee may treat the Person in whose name this Note
is registered as the owner hereof for all purposes, whether or not this Note is
overdue, and neither the Company, the Trustee nor any agent shall be affected by
notice to the contrary.
All terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
A-2-6
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Note to
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(Print or type name, address and zip code of assignee)
- ----------------------------------------------------------------
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint ________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: ____________________ Signed: __________________________
(Sign exactly as name
appears on the other side
of this Note)
A-2-7
<PAGE>
EXHIBIT B
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS
NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A
TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT AND SUCH CERTIFICATE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL, SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
________, __
Re: GENESIS HEALTH VENTURES, INC.
9 7/8% Senior Subordinated Notes
due January 15, 2009
Ladies and Gentlemen:
In connection with our proposed purchase of 9 7/8% Senior
Subordinated Notes due 2009 (the "Notes") of Genesis Health Ventures, Inc. (the
"Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated December 18, 1998, relating to the Notes and such
other information as we deem necessary in order to make our investment decision.
We acknowledge that we have read the matters under the caption "Notices to
Investors."
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Notes (as described in the Offering Memorandum) and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act").
C-1
<PAGE>
3. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be offered
or sold within the United States or to, or for the account or benefit of, U.S.
persons except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the Company,
or any of its subsidiaries, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C) to
an institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee and the Note Registrar (each as defined in the Indenture relating to
the Notes), a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes (the form of which letter
can be obtained from the Trustee and the Note Registrar), (D) outside the United
States in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing Notes from us a notice advising such purchaser that resales of
the Notes are restricted as stated herein.
4. We understand that, on any proposed resale of Notes, we
will be required to furnish to the Trustee, the Note Registrar and the Company,
such certification, legal opinions and other information as the Trustee, the
Note Registrar and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further understand
that the Notes purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or their investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You, the Company, and the Initial Purchasers are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
By:_____________________________
Name:
Title:
C-2
<PAGE>
================================================================================
GENESIS HEALTH VENTURES, INC.
AND
THE BANK OF NEW YORK, Trustee
---------------
INDENTURE
Dated as of December 23, 1998
---------------
9 7/8% Senior Subordinated Notes due 2009
================================================================================
<PAGE>
RECONCILIATION AND TIE SHEET*
between
PROVISIONS OF THE TRUST INDENTURE ACT OF 1939, AS AMENDED
and
INDENTURE DATED AS OF DECEMBER 23, 1998
between
GENESIS HEALTH VENTURES, INC.
and
THE BANK OF NEW YORK, Trustee
Section Section of
of Act Indenture
- ------- ----------
310(a)(1)...........................................................8.9
310(a)(2)...........................................................8.9
310(a)(3)...........................................................Inapplicable
310(a)(4)...........................................................Inapplicable
310(b)..............................................................8.8, 8.10
310(c)..............................................................Inapplicable
311(a)..............................................................8.13
311(b)..............................................................8.13
311(c)..............................................................Inapplicable
312(a)..............................................................6.1, 6.2(a)
312(b)..............................................................6.2(b)
312(c)..............................................................6.2(c)
313(a)..............................................................6.4(a)
313(b)(1)...........................................................Inapplicable
313(b)(2)...........................................................6.4(b)
313(c)..............................................................6.4(c)
313(d)..............................................................6.4(d)
314(a)(1)...........................................................6.3(a)
314(a)(2)...........................................................6.3(b)
314(a)(3)...........................................................6.3(c)
314(a)(4)...........................................................5.19
314(b)..............................................................Inapplicable
314(c)(1)...........................................................15.5
314(c)(2)...........................................................15.5
314(c)(3)...........................................................Inapplicable
314(d)..............................................................Inapplicable
314(e)..............................................................15.5
314(f)..............................................................Inapplicable
315(a)..............................................................8.1(a)
315(b)..............................................................8.14
- ----------------------
* This Reconciliation and Tie Sheet is not a part of the Indenture.
<PAGE>
315(c)..............................................................8.1(a)
315(d)..............................................................8.1(c)
315(e)..............................................................7.14
316(a)(1)...........................................................7.13, 7.12
316(a)(2)...........................................................Inapplicable
316(b)..............................................................7.8
317(a)..............................................................7.4
317(b)..............................................................5.4
318(a)..............................................................15.7
<PAGE>
TABLE OF CONTENTS**
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS
SECTION 1.1 Certain terms defined.....................................................2
SECTION 1.2 Other Definitions........................................................18
SECTION 1.3 Incorporation by Reference of Trust Indenture Act........................19
SECTION 1.4 Rules of Construction....................................................20
ARTICLE II ISSUE, DESCRIPTION, REGISTRATION AND EXCHANGE OF NOTES
SECTION 2.1 Designation, amount, authentication and delivery of Notes................20
SECTION 2.2 Form of Notes and Trustee's certificate..................................21
SECTION 2.3 Date of Notes and denominations..........................................22
SECTION 2.4 Execution of Notes.......................................................22
SECTION 2.5 Registration, Registration of Transfer and Exchange of Notes.............23
SECTION 2.6 Temporary Notes..........................................................24
SECTION 2.7 Mutilated, destroyed, lost or stolen Notes...............................24
SECTION 2.8 Cancellation of surrendered Notes........................................25
SECTION 2.9 Defaulted Interest.......................................................25
SECTION 2.10 CUSIP Number............................................................26
SECTION 2.11 Book-Entry Provisions for Global Note...................................26
SECTION 2.12 Special Transfer Provisions.............................................27
ARTICLE III SUBORDINATION OF NOTES
SECTION 3.1 Agreement to subordinate.................................................30
SECTION 3.2 Distribution on dissolution, liquidation, bankruptcy or reorganization...30
SECTION 3.3 Suspension of Payment When Senior Indebtedness in Default................32
SECTION 3.4 Payment Permitted if No Default..........................................33
SECTION 3.5 Subrogation to Rights of Holders of Senior Indebtedness..................33
SECTION 3.6 Provisions Solely to Define Relative Rights..............................33
SECTION 3.7 Trustee to Effectuate Subordination......................................34
SECTION 3.8 No Waiver of Subordination Provisions....................................34
SECTION 3.9 Notice to Trustee........................................................35
SECTION 3.10 Reliance on Judicial Order or Certificate of Liquidating Agent..........36
SECTION 3.11 Rights of Trustee as a Holder of Senior Indebtedness; Preservation of
Trustee's Rights......................................................36
SECTION 3.12 Article Applicable to Paying Agents.....................................36
SECTION 3.13 No Suspension of Remedies...............................................36
SECTION 3.14 Trustee's Relation to Senior Indebtedness...............................37
SECTION 3.15 Other Rights of Holders of Senior Indebtedness..........................37
ARTICLE IV REDEMPTION AND PURCHASES OF NOTES
SECTION 4.1 Redemption Prices........................................................37
SECTION 4.2 Notice of Redemption; Selection of Notes.................................38
SECTION 4.3 When Notes called for redemption become due and payable..................39
SECTION 4.4 Cancellation of Redeemed Notes...........................................40
SECTION 4.5 Purchase of Notes Upon Change in Control.................................40
ARTICLE V COVENANTS
SECTION 5.1 Payment of principal of and premium, if any, and interest on Notes.......43
SECTION 5.2 Maintenance of office or agency for registration of transfer, exchange
and payment of Notes...................................................43
SECTION 5.3 Appointment to fill a vacancy in the office of Trustee...................44
SECTION 5.4 Provision as to Paying Agent.............................................44
SECTION 5.5 Maintenance of Corporate Existence.......................................45
SECTION 5.6 Payment of Taxes and Other Claims........................................45
SECTION 5.7 Maintenance of Properties................................................45
SECTION 5.8 Insurance................................................................46
SECTION 5.9 Limitation on Indebtedness...............................................46
SECTION 5.10 Limitation on Restricted Payments.......................................46
SECTION 5.11 Restrictions on Preferred Stock of Subsidiaries and Subsidiary
Distributions.........................................................49
SECTION 5.12 Limitation on Transactions with Affiliates..............................49
SECTION 5.13 Disposition of Proceeds of Asset Sales..................................50
SECTION 5.14 Limitation on Liens Securing Subordinated Indebtedness..................54
SECTION 5.15 Limitation on Other Senior Subordinated Indebtedness....................55
SECTION 5.16 Limitation on Issuance of Guarantees of Subordinated Indebtedness.......55
SECTION 5.17 Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries..........................................................56
SECTION 5.18 Provision of Financial Statements.......................................57
SECTION 5.19 Statement by Officers as to Default.....................................57
SECTION 5.20 Waiver of Certain Covenants.............................................57
SECTION 5.21 Further assurance.......................................................58
</TABLE>
- --------
This Table of Contents is not part of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 6.1 Company to furnish Trustee information as to names and addresses of
Noteholders............................................................58
SECTION 6.2 Preservation and disclosure of lists.....................................58
SECTION 6.3 Reports by the Trustee...................................................60
SECTION 6.4 Reports by the Company...................................................61
ARTICLE VII REMEDIES
SECTION 7.1 Events of Default........................................................62
SECTION 7.2 Acceleration of Maturity; Rescission and Annulment.......................63
SECTION 7.3 Collection of Indebtedness and Suits for Enforcement by Trustee..........64
SECTION 7.4 Trustee May File Proofs of Claim.........................................65
SECTION 7.5 Trustee May Enforce Claims Without Possession of Notes...................66
SECTION 7.6 Application of Money Collected...........................................66
SECTION 7.7 Limitation on Suits......................................................66
SECTION 7.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest...........................................................67
SECTION 7.9 Restoration of Rights and Remedies.......................................67
SECTION 7.10 Rights and Remedies Cumulative..........................................68
SECTION 7.11 Delay or Omission Not Waiver............................................68
SECTION 7.12 Control by Holders......................................................68
SECTION 7.13 Waiver of Past Defaults.................................................68
SECTION 7.14 Undertaking for Costs...................................................69
SECTION 7.15 Waiver of Stay, Extension or Usury Laws.................................69
ARTICLE VIII CONCERNING THE TRUSTEE
SECTION 8.1 Duties and responsibilities of Trustee...................................69
SECTION 8.2 Reliance on document, opinions, etc......................................71
SECTION 8.3 No responsibility for recitals, etc......................................72
SECTION 8.4 Trustee, Paying Agent or Note Registrar may own Notes....................72
SECTION 8.5 Moneys received by Trustee to be held in trust without interest..........73
SECTION 8.6 Compensation and expenses of Trustee.....................................73
SECTION 8.7 Right of Trustee to rely on Officers' Certificate where no other
evidence specifically prescribed.......................................73
SECTION 8.8 Conflicting interest of Trustee..........................................73
SECTION 8.9 Requirements for eligibility of Trustee..................................74
SECTION 8.10 Resignation or removal of Trustee.......................................74
SECTION 8.11 Acceptance by successor to Trustee; notice of succession of a Trustee...75
SECTION 8.12 Successor to Trustee by merger, consolidation or succession to business.76
SECTION 8.13 Limitations on rights of Trustee as a creditor..........................76
SECTION 8.14 Notice of Defaults......................................................77
ARTICLE IX CONCERNING THE NOTEHOLDERS
SECTION 9.1 Evidence of action by Noteholders........................................77
SECTION 9.2 Proof of execution of instruments and of holding of Notes................77
SECTION 9.3 Who may be deemed owners of Note.........................................77
SECTION 9.4 Notes owned by Company or controlled by controlling persons disregarded
for certain purposes...................................................78
SECTION 9.5 Record date for action by Noteholders....................................78
SECTION 9.6 Instruments executed by Noteholders bind future holders..................78
ARTICLE X NOTEHOLDERS MEETINGS
SECTION 10.1 Purposes for which meetings may be called...............................79
SECTION 10.2 Manner of calling meetings; record date.................................79
SECTION 10.3 Call of meeting by Company or Noteholders...............................80
SECTION 10.4 Who may attend and vote at meetings.....................................80
SECTION 10.5 Manner of voting at meetings and record to be kept......................80
SECTION 10.6 Exercise of rights of Trustee and Noteholders not to be hindered or
delayed...............................................................81
ARTICLE XI SUPPLEMENTAL INDENTURES
SECTION 11.1 Purposes for which supplemental Indentures may be entered into without
consent of Noteholders................................................81
SECTION 11.2 Modification of Indenture with consent of holders of 51 percent in
principal amount of Notes.............................................82
SECTION 11.3 Effect of supplemental indentures.......................................83
SECTION 11.4 Conformity with Trust Indenture Act.....................................84
SECTION 11.5 Notes may bear notation of changes by supplemental indentures...........84
SECTION 11.6 Officers' Certificate and Opinion of Counsel............................84
SECTION 11.7 Modification of Indenture with consent of holders of Senior
Indebtedness..........................................................84
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XII CONSOLIDATION, MERGER AND SALE
SECTION 12.1 Merger and Sale of Assets, etc..........................................85
SECTION 12.2 Successor Substituted...................................................87
SECTION 12.3 Opinion of Counsel......................................................87
ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE;UNCLAIMED MONEYS
SECTION 13.1 Legal Defeasance and Covenant Defeasance of the Notes...................87
SECTION 13.2 Termination of Obligations upon Cancellation of the Notes...............90
SECTION 13.3 Survival of Certain Obligations.........................................90
SECTION 13.4 Acknowledgment of Discharge by Trustee..................................91
SECTION 13.5 Application of Trust Assets.............................................91
SECTION 13.6 Repayment to the Company; Unclaimed Money...............................91
SECTION 13.7 Reinstatement...........................................................91
ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 14.1 Incorporators, stockholders, officers and directors of Company or any
Guarantor (other than the Company) exempt from individual liability...92
ARTICLE XV MISCELLANEOUS PROVISIONS
SECTION 15.1 Successors and assigns of Company bound by Indenture....................93
SECTION 15.2 Acts of board, committee or officer of successor corporation valid......93
SECTION 15.3 Required notices or demand may be served by mail; waiver................93
SECTION 15.4 Indenture and Notes to be construed in accordance with the laws of the
State of New York.....................................................94
SECTION 15.5 Evidence of compliance with conditions precedent........................94
SECTION 15.6 Payments due on Saturdays, Sundays and holidays.........................95
SECTION 15.7 Provisions required by Trust Indenture Act to control...................95
SECTION 15.8 Provisions of this Indenture and Notes for the sole benefit of the
parties and the Noteholders...........................................95
SECTION 15.9 Severability............................................................95
SECTION 15.10 Indenture may be executed in counterparts; acceptance by Trustee.......95
SECTION 15.11 Article and Section headings...........................................95
</TABLE>
<PAGE>
EXHIBIT A-1 FORM OF INITIAL NOTE............................................A-1
EXHIBIT A-2 FORM OF EXCHANGE NOTE...........................................A-2
EXHIBIT B FORM OF LEGEND..................................................B-1
EXHIBIT C FORM OF CERTIFICATE.............................................C-1
<PAGE>
CHIEF EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998
by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with
its principal place of business at 101 East State Street, Kennett Square, PA
19348 (the "Company"), and Michael R. Walker (the "Executive").
WITNESSETH
The Company desires to continue to employ the Executive as an employee
of the Company, and the Executive desires to continue to provide services to the
Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as the Chairman and Chief Executive Officer of the Company.
The Executive accepts such employment and agrees to perform the customary
responsibilities of such position during the term of this Agreement. The
Executive will perform such other duties as may from time to time be reasonably
assigned to him by the Board, provided such duties are consistent with and do
not interfere with the performance of the duties described herein and are of a
type customarily performed by persons of similar titles with similar
corporations. Nothing in this Agreement shall preclude Executive from serving as
a director, trustee, officer of, or partner in, any other firm, trust,
corporation or partnership or from pursuing personal investments, as long as
such activities do not interfere with Executive's performance of his duties
hereunder.
2. Period of Employment.
(a) Period of Employment. The period of the Executive's employment
under this Agreement shall commence on the date hereof and shall, unless sooner
terminated pursuant to Section 4, continue for a five year period ending on
August 12, 2003 (such period, as extended from time to time, herein referred to
as the "Term"). Subject to Section 2(b), and if the Term has not been terminated
pursuant to Section 4, on August 12, 2000 and on each August 12 thereafter the
Term shall be extended for an additional period of one year so that, at anytime,
the Term shall be for at least three (3) years.
(b) Termination of Automatic Extension by Notice. The Company (with
the affirmative vote of two-thirds of the entire membership of the Board of
Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. The
Compensation Committee of the Board of Directors shall review Executive's base
salary on an annual basis and make recommendations with respect to increases in
base salary to the Board of Directors. Any increase in base salary shall not
reduce or limit any other obligation of the Company hereunder. Executive's
annual base salary payable hereunder, as it may be increased from time to time
and without reduction for any amounts deferred as described below, is referred
to herein as "Base Salary". Executive's Base Salary, as in effect from time to
time, may not be reduced by the Company without Executive's consent, provided
that the Base Salary payable under this paragraph shall be reduced to the extent
Executive elects to defer or reduce such salary under the terms of any deferred
compensation or savings plan or other employee benefit arrangement maintained or
established by the Company. The Company shall pay Executive the portion of his
Base Salary not deferred in accordance with its customary periodic payroll
practices.
(b) Incentive Compensation. Executive shall be eligible to receive
incentive compensation in the form of stock options in amounts determined from
time to time by the Stock Option Subcommittee of the Compensation Committee of
the Board of Directors, subject to the approval of the Board of Directors.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be eligible to
participate in (1) each welfare benefit plan sponsored or maintained by the
Company, including, without limitation, each life, hospitalization, medical,
dental, health, accident or disability insurance or similar plan or program of
the Company, and (2) each pension, profit sharing, retirement, deferred
compensation or savings plan sponsored or maintained by the Company, in each
case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. Without in any way limiting the foregoing,
Executive shall be provided with term life insurance providing a $6,000,000
death benefit to Executive's designated beneficiaries. With respect to the
pension or retirement benefits payable to Executive, Executive's service
credited for purposes of determining Executive's benefits and vesting shall be
determined in accordance with the terms of the applicable plan or program.
Nothing in this Section 3(c), in and of itself, shall be construed to limit the
ability of the Company to amend or terminate any particular plan, program or
arrangement.
(ii) Vacation. During the Term, the Executive shall be entitled
to the number of paid vacation days in each calendar year determined by the
Company from time to time for its senior executive officers, but not less than
five weeks in any calendar year. The
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Executive shall also be entitled to all paid holidays given by the Company to
its senior officers. Vacation days which are not used during any calendar year
may not be accrued, nor shall Executive be entitled to compensation for unused
vacation days.
(iii) Perquisites. During the Term, Executive shall be entitled
to receive such perquisites (e.g., fringe benefits) as are generally provided to
other senior officers of the Company in accordance with the then current
policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company shall pay
or reimburse Executive for all reasonable expenses incurred or paid by Executive
in the performance of Executive's duties hereunder, upon presentation of expense
statements or vouchers and such other information as the Company may reasonably
require and in accordance with the generally applicable policies and practices
of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the Corporation for
"Cause" shall mean termination by action of at least two-thirds of the members
of the Board of Directors of the Company at a meeting duly called and held upon
at least 15 days' prior written notice to Executive specifying the particulars
of the action or inaction alleged to constitute "Cause" (and at which meeting
Executive and his counsel were entitled to be present and given reasonable
opportunity to be heard) because of (i) Executive's conviction of any felony
(whether or not involving the Company or any of its subsidiaries) involving
moral turpitude which subjects, or if generally known, would subject, the
Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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(c) Death or Disability. If Executive dies, his employment shall
terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of any
duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's Base Salary
as in effect on the date hereof or as the same may be increased from time to
time during the term of this Agreement;
(iii) a relocation of the Executive's principal place of
employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section 6 hereof);
(v) any material failure by the Company to comply with any of
the provisions of this Agreement;
(vi) any termination of the Executive's employment for reasons
other than death, disability or Cause or the termination by the Board of
Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement;
(vii) the commencement of a proceeding or case, with or without
the application or consent of the Company or any of its subsidiaries, in any
court or competent jurisdiction, seeking (A) the liquidation, reorganization,
dissolution or winding-up of the Company or its subsidiaries, or the composition
or readjustment of the debts of the Company or
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its subsidiaries, (B) the appointment of a trustee, receiver, custodian,
liquidator or the like for the Company or its subsidiaries or of all or any
substantial part of their respective assets, or (C) any similar relief in
respect of the Company or its subsidiaries under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if
this Agreement is terminated by the Company for disability, 30 days after Notice
of Termination is given to the Executive (provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period), (ii) if Executive's employment is terminated due to
Executive's death, on the date of death; (iii) if the Executive's employment is
terminated for Good Reason as a result of a Change of Control, as set forth in
Section 6 hereof; or (iv) if the Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination (which shall not
be less than 90 nor more than 180 days from the date such Notice of Termination
is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall be
terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
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(c) Termination by Executive for Good Reason or by the Company for
Reasons other than for Cause, Death or Disability.
(i) In the event (1) the Company terminates the Term without
cause, or (2) the Executive terminates the Term for Good Reason, then (I) the
Company shall make a lump-sum payment to the Executive equal to (x) the Base
Salary payable to him for the greater of the remainder of the Term or three (3)
years, plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the three year
period immediately preceding such termination, provided that the value
attributed to such stock options shall not exceed one hundred percent (100%) of
Executive's average base salary for the three year period preceding the
termination of the Term, multiplied by three; and (II) all stock options, stock
awards and similar equity rights, if any, shall vest and become exercisable
immediately prior to the termination of the Term and remain exercisable through
their original terms with all rights.
(ii) Following termination of the Term for any reason, other
than for Cause or upon the death of the Executive, the Company shall also
maintain in full force and effect, for the continued benefit of the Executive
for a period equal to the greater of (x) the period of the Term otherwise
remaining or (y) two (2) years without giving effect to such termination, all
employee benefit plans and programs to which the Executive was entitled prior to
the date of termination (including, without limitation, the benefit plans and
programs provided for herein) if the Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Executive's participation in any such plan or program is
barred by the terms thereof, the Company shall pay to the Executive an amount
equal to the annual contribution, payments, credits or allocations made by the
Company to him, to his account or on his behalf under such plans and programs
from which his continued participation is barred except that if the Executive's
participation in any health, medical, life insurance or disability plan or
program is barred, the Company shall obtain and pay for, on the Executive's
behalf, individual insurance plans, policies or programs which provide to the
Executive health, medical, life and disability insurance coverage which is
equivalent to the insurance coverage to which the Executive was entitled prior
to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive may
terminate the Term upon notice to the Company, effective as set forth in such
notice (i) for any reason or for no reason during the initial ninety (90) day
period following the date of such Change of Control, or (ii) at any time, within
twenty-four (24) months following the date of a Change of Control, if any other
event constituting Good Reason hereunder continues for more than ten (10) days
after the Executive delivers notice thereof to the Company. The failure of
Executive to exercise his rights hereunder following an event constituting a
Change of Control shall not preclude Executive from exercising such rights
following the occurrence of a subsequent Change of Control event, even if
related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement (including,
without limitation, any "lock-up" or voting agreement with any of the Company's
principal stockholders) which contemplates a transaction, or (ii) the
commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of Control"
shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d)
of the Exchange Act but excluding the Company and any subsidiary thereof and any
employee benefit plan sponsored or maintained by the Company or any subsidiary
(including any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
as amended from time to time), of securities of the Company representing 25
percent or more of the combined voting power of the Company's then outstanding
securities;
(ii) when, during any period of 24 consecutive months after the
date of this Agreement, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof; provided that a director who
was not a director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such 24-month
period) or by prior operation of this Section 6(d)(ii); or
(iii) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
or a subsidiary through purchase of assets, or by merger, or otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, in the opinion of independent tax counsel reasonably acceptable to the
Company, there is no reasonable basis for taking the position that any such
payment is not subject to the Excise Tax under U.S. tax law then in effect. If
the Internal Revenue Service makes a claim that any payment or portion thereof
is subject to the Excise Tax, at the Company's election, and the Company's
direction and expense, the Executive shall contest such claim; provided,
however, that the Company shall advance to the Executive the costs and expenses
of such contest, as incurred. For the purpose of determining the amount of any
payment under clause (ii) of the first sentence of this paragraph, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation applicable to individuals in the calendar year in which
such indemnity payment is to be made and state and local income taxes at the
highest marginal rates of taxation applicable to individuals as are in effect in
the jurisdiction in which the Executive is resident, net of the reduction in
federal income taxes that is obtained from deduction of such state and local
taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term, Executive
shall keep confidential and shall not, except with the Company's express prior
written consent, or except in the proper course of his employment with
the Company, directly or indirectly, communicate, disclose, divulge, publish, or
otherwise express, to any Person, or use for his own benefit or the benefit of
any Person, any trade secrets, confidential or proprietary knowledge or
information, no matter when or how acquired concerning the conduct and details
of the Company's business, including without limitation, names of customers and
suppliers, marketing methods, trade secrets, policies, prospects and financial
condition. For purposes of this Section 8, confidential information shall not
include any information which is now known by or readily available to the
general public or which becomes known by or readily available to the general
public other than as a result of any improper act or omission of Executive.
(b) Non-Competition. During the Term hereof and for a period of
two (2) years thereafter, Executive shall not, except with Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
(i) Solicit any Person who is or during such period becomes
a customer, supplier, employee, salesman, agent or representative of Company, in
any manner which interferes or might interfere with such Person's relationship
with Company, or in an effort to obtain such Person as a customer, supplier,
employee, salesman, agent, or representative of
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any business in competition with Company within 15 miles of any office or
facility owned, leased or operated by Company.
(ii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him of
any of the covenants and agreements of this Section 8 ("Covenants") will result
in irreparable injury to Employer for which money damages could not adequately
compensate Company, and therefore, in the event of any such breach, Company
shall be entitled, in addition to all other rights and remedies which Company
may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining Executive and/or all other Persons involved
therein from continuing such breach. The existence of any claim or cause of
action which Executive or any such other Person may have against Company shall
not constitute a defense or bar to the enforcement of any of the Covenants. If
Company is obliged to resort to litigation to enforce any of the Covenants which
has a fixed term, then such term shall be extended for a period of time equal to
the period during which a material breach of such Covenant was occurring,
beginning on the date of a final court order (without further right of appeal)
holding that such a material breach occurred, or, if later, the last day of the
original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application is
construed to be invalid, illegal or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination, or otherwise. The amounts payable to Executive under
Section 5 hereof shall not be treated as damages but as severance compensation
to which, Executive is entitled by reason of termination of his employment in
the circumstances contemplated by this Agreement.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
If to Executive, to:
Michael R. Walker
228 N. Garfield Street
Kennett Square, PA 19348
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(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended, modified,
supplemented or terminated except in writing signed by both parties. No action
taken by Company hereunder, including without limitation any waiver, consent or
approval, shall be effective unless approved by a majority of the Board of
Directors.
(d) Termination of Prior Employment Agreements. All prior employment
agreements between Executive and Company and/or any of its affiliates (and any
of their predecessors) are hereby terminated as of the date hereof as fully
performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall inure to
the benefit of and shall be binding upon the Company and its successors and
permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
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(j) Controlling Law. This Agreement is made under, and shall be
governed by, construed and enforced in accordance with, the substantive laws of
the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree that any
claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall the single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or any other right, remedy, power or privilege, nor shall
any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(n) Legal Expenses. In the event that the Executive institutes
any legal action to enforce his rights under, or to recover damages for breach
of this Agreement, the Executive, if
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he is the prevailing party, shall be entitled to recover from the Company any
actual expenses for attorney's fees and disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
________________________ By:___________________________________
Secretary President
(Corporate Seal)
EXECUTIVE:
______________________________________
Chairman and Chief Executive Officer
<PAGE>
SENIOR EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998
by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with
its principal place of business at 101 East State Street, Kennett Square, PA
19348 (the "Company"), and George V. Hager, Jr. (the "Executive").
WITNESSETH
The Company desires to continue to employ the Executive as an employee
of the Company, and the Executive desires to continue to provide services to the
Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as Senior Vice President and Chief Financial Officer of the
Company. The Executive accepts such employment and agrees to perform the
customary responsibilities of such position during the term of this Agreement.
The Executive will perform such other duties as may from time to time be
reasonably assigned to him by the Board, provided such duties are consistent
with and do not interfere with the performance of the duties described herein
and are of a type customarily performed by persons of similar titles with
similar corporations. Nothing in this Agreement shall preclude Executive from
serving as a director, trustee, officer of, or partner in, any other firm,
trust, corporation or partnership or from pursuing personal investments, as long
as such activities do not interfere with Executive's performance of his duties
hereunder.
2. Period of Employment.
(a) Period of Employment. The period of the Executive's
employment under this Agreement shall commence on the date hereof and shall,
unless sooner terminated pursuant to Section 4, continue for a three year period
ending on August 12, 2001 (such period, as extended from time to time, herein
referred to as the "Term"). Subject to Section 2(b), and if the Term has not
been terminated pursuant to Section 4, on August 12, 2000 and on each August 12
thereafter the Term shall be extended for an additional period of one year so
that, at anytime, the Term shall be for at least three (3) years.
(b) Termination of Automatic Extension by Notice. The Company
(with the affirmative vote of two-thirds of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. The
Compensation Committee of the Board of Directors shall review Executive's base
salary on an annual basis and make recommendations with respect to increases in
base salary to the Board of Directors. Any increase in base salary shall not
reduce or limit any other obligation of the Company hereunder. Executive's
annual base salary payable hereunder, as it may be increased from time to time
and without reduction for any amounts deferred as described below, is referred
to herein as "Base Salary". Executive's Base Salary, as in effect from time to
time, may not be reduced by the Company without Executive's consent, provided
that the Base Salary payable under this paragraph shall be reduced to the extent
Executive elects to defer or reduce such salary under the terms of any deferred
compensation or savings plan or other employee benefit arrangement maintained or
established by the Company. The Company shall pay Executive the portion of his
Base Salary not deferred in accordance with its customary periodic payroll
practices.
(b) Incentive Compensation. Executive shall be eligible to receive
incentive compensation in the form of stock options in amounts determined from
time to time by the Stock Option Subcommittee of the Compensation Committee of
the Board of Directors, subject to the approval of the Board of Directors.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be eligible to
participate in (1) each welfare benefit plan sponsored or maintained by the
Company, including, without limitation, each life, hospitalization, medical,
dental, health, accident or disability insurance or similar plan or program of
the Company, and (2) each pension, profit sharing, retirement, deferred
compensation or savings plan sponsored or maintained by the Company, in each
case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. With respect to the pension or retirement
benefits payable to Executive, Executive's service credited for purposes of
determining Executive's benefits and vesting shall be determined in accordance
with the terms of the applicable plan or program. Nothing in this Section 3(c),
in and of itself, shall be construed to limit the ability of the Company to
amend or terminate any particular plan, program or arrangement.
(ii) Vacation. During the Term, the Executive shall be
entitled to the number of paid vacation days in each calendar year determined by
the Company from time to time for its senior executive officers, but not less
than five weeks in any calendar year. The
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Executive shall also be entitled to all paid holidays given by the Company to
its senior officers. Vacation days which are not used during any calendar year
may not be accrued, nor shall Executive be entitled to compensation for unused
vacation days.
(iii) Perquisites. During the Term, Executive shall be entitled
to receive such perquisites (e.g., fringe benefits) as are generally provided to
other senior officers of the Company in accordance with the then current
policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company shall pay
or reimburse Executive for all reasonable expenses incurred or paid by Executive
in the performance of Executive's duties hereunder, upon presentation of expense
statements or vouchers and such other information as the Company may reasonably
require and in accordance with the generally applicable policies and practices
of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the Corporation for
"Cause" shall mean termination by action of at least two-thirds of the members
of the Board of Directors of the Company at a meeting duly called and held upon
at least 15 days' prior written notice to Executive specifying the particulars
of the action or inaction alleged to constitute "Cause" (and at which meeting
Executive and his counsel were entitled to be present and given reasonable
opportunity to be heard) because of (i) Executive's conviction of any felony
(whether or not involving the Company or any of its subsidiaries) involving
moral turpitude which subjects, or if generally known, would subject, the
Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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(c) Death or Disability. If Executive dies, his employment shall
terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of any
duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's Base Salary
as in effect on the date hereof or as the same may be increased from time to
time during the term of this Agreement;
(iii) a relocation of the Executive's principal place of
employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section 6 hereof);
(v) any material failure by the Company to comply with any
of the provisions of this Agreement;
(vi) any termination of the Executive's employment for reasons
other than death, disability or Cause or the termination by the Board of
Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement
(vii) the commencement of a proceeding or case, with or without
the application or consent of the Company or any of its subsidiaries, in any
court or competent jurisdiction, seeking (A) the liquidation, reorganization,
dissolution or winding-up of the Company or its subsidiaries, or the composition
or readjustment of the debts of the Company or
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its subsidiaries, (B) the appointment of a trustee, receiver, custodian,
liquidator or the like for the Company or its subsidiaries or of all or any
substantial part of their respective assets, or (C) any similar relief in
respect of the Company or its subsidiaries under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if
this Agreement is terminated by the Company for disability, 30 days after Notice
of Termination is given to the Executive (provided that the Executive shall not
have returned to the performance of the Executive's duties on a full-time basis
during such 30-day period), (ii) if Executive's employment is terminated due to
Executive's death, on the date of death; (iii) if the Executive's employment is
terminated for Good Reason as a result of a Change of Control, as set forth in
Section 6 hereof; or (iv) if the Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination (which shall not
be less than 90 nor more than 180 days from the date such Notice of Termination
is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall be
terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
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(c) Termination by Executive for Good Reason or by the Company for
Reasons other than for Cause, Death or Disability.
(i) In the event (1) the Company terminates the Term without
cause, or (2) the Executive terminates the Term for Good Reason, then (I) the
Company shall make a lump-sum payment to the Executive equal to (x) the Base
Salary payable to him for the greater of the remainder of the Term or three (3)
years plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the three year
period immediately preceding such termination, provided that the value
attributed to such stock options shall not exceed one hundred percent (100%) of
Executive's average base salary for the three year period preceding the
termination of the Term, multiplied by three; and (II) all stock options, stock
awards and similar equity rights, if any, shall vest and become exercisable
immediately prior to the termination of the Term and remain exercisable through
their original terms with all rights.
(ii) Following termination of the Term for any reason, other
than for Cause or upon the death of the Executive, the Company shall also
maintain in full force and effect, for the continued benefit of the Executive
for a period equal to the greater of (x) the period of the Term otherwise
remaining or (y) two (2) years without giving effect to such termination, all
employee benefit plans and programs to which the Executive was entitled prior to
the date of termination (including, without limitation, the benefit plans and
programs provided for herein) if the Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Executive's participation in any such plan or program is
barred by the terms thereof, the Company shall pay to the Executive an amount
equal to the annual contribution, payments, credits or allocations made by the
Company to him, to his account or on his behalf under such plans and programs
from which his continued participation is barred except that if the Executive's
participation in any health, medical, life insurance or disability plan or
program is barred, the Company shall obtain and pay for, on the Executive's
behalf, individual insurance plans, policies or programs which provide to the
Executive health, medical, life and disability insurance coverage which is
equivalent to the insurance coverage to which the Executive was entitled prior
to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive
may terminate the Term upon notice to the Company, effective as set forth in
such notice (i) for any reason or for no reason during the initial ninety (90)
day period following the date of such Change of Control, or (ii) at any time,
within twenty-four (24) months following the date of a Change of Control, if any
other event constituting Good Reason hereunder continues for more than ten (10)
days after the Executive delivers notice thereof to the Company. The failure of
Executive to exercise his rights hereunder following an event constituting a
Change of Control shall not preclude Executive from exercising such rights
following the occurrence of a subsequent Change of Control event, even if
related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement (including,
without limitation, any "lock-up" or voting agreement with any of the Company's
principal stockholders) which contemplates a transaction, or (ii) the
commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of Control"
shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d)
of the Exchange Act but excluding the Company and any subsidiary thereof and any
employee benefit plan sponsored or maintained by the Company or any subsidiary
(including any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
as amended from time to time), of securities of the Company representing 25
percent or more of the combined voting power of the Company's then outstanding
securities;
(ii) when, during any period of 24 consecutive months after the
date of this Agreement, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof; provided that a director who
was not a director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such 24-month
period) or by prior operation of this Section 6(d)(ii); or
(iii) the occurrence of a transaction requiringstockholder
approval for the acquisition of the Company by an entity other than the Company
or a subsidiary through purchase of assets, or by merger, or otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, in the opinion of independent tax counsel reasonably acceptable to the
Company, there is no reasonable basis for taking the position that any such
payment is not subject to the Excise Tax under U.S. tax law then in effect. If
the Internal Revenue Service makes a claim that any payment or portion thereof
is subject to the Excise Tax, at the Company's election, and the Company's
direction and expense, the Executive shall contest such claim; provided,
however, that the Company shall advance to the Executive the costs and expenses
of such contest, as incurred. For the purpose of determining the amount of any
payment under clause (ii) of the first sentence of this paragraph, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation applicable to individuals in the calendar year in which
such indemnity payment is to be made and state and local income taxes at the
highest marginal rates of taxation applicable to individuals as are in effect in
the jurisdiction in which the Executive is resident, net of the reduction in
federal income taxes that is obtained from deduction of such state and local
taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term, Executive
shall keep confidential and shall not, except with the Company's express prior
written consent, or except in the proper course of his employment with
the Company, directly or indirectly, communicate, disclose, divulge, publish, or
otherwise express, to any Person, or use for his own benefit or the benefit of
any Person, any trade secrets, confidential or proprietary knowledge or
information, no matter when or how acquired concerning the conduct and details
of the Company's business, including without limitation, names of customers and
suppliers, marketing methods, trade secrets, policies, prospects and financial
condition. For purposes of this Section 8, confidential information shall not
include any information which is now known by or readily available to the
general public or which becomes known by or readily available to the general
public other than as a result of any improper act or omission of Executive.
(b) Non-Competition. During the Term hereof and for a period of two
(2) years thereafter, Executive shall not, except with Company's express prior
written consent, directly or indirectly, in any capacity, for the benefit of any
Person:
(i) Solicit any Person who is or during such period becomes a
customer, supplier, employee, salesman, agent or representative of Company, in
any manner which interferes or might interfere with such Person's relationship
with Company, or in an effort to obtain such Person as a customer, supplier,
employee, salesman, agent, or representative of
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any business in competition with Company within 15 miles of any office or
facility owned, leased or operated by Company.
(ii) Establish, engage, own, manage, operate, join or control,
or participate in the establishment, ownership (other than as the owner of less
than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him of
any of the covenants and agreements of this Section 8 ("Covenants") will result
in irreparable injury to Employer for which money damages could not adequately
compensate Company, and therefore, in the event of any such breach, Company
shall be entitled, in addition to all other rights and remedies which Company
may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining Executive and/or all other Persons involved
therein from continuing such breach. The existence of any claim or cause of
action which Executive or any such other Person may have against Company shall
not constitute a defense or bar to the enforcement of any of the Covenants. If
Company is obliged to resort to litigation to enforce any of the Covenants which
has a fixed term, then such term shall be extended for a period of time equal to
the period during which a material breach of such Covenant was occurring,
beginning on the date of a final court order (without further right of appeal)
holding that such a material breach occurred, or, if later, the last day of the
original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application is
construed to be invalid, illegal or unenforceable, then the other portions and
their application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable
because of its scope, duration, geographical area or similar factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination, or otherwise. The amounts payable to Executive under
Section 5 hereof shall not be treated as damages but as severance compensation
to which, Executive is entitled by reason of termination of his employment in
the circumstances contemplated by this Agreement.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Attention: Chairman and Chief Executive Officer
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
If to Executive, to:
George V. Hager, Jr.
320 Bellevue Avenue
Haddonfield, NJ 08033
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(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended, modified,
supplemented or terminated except in writing signed by both parties. No action
taken by Company hereunder, including without limitation any waiver, consent or
approval, shall be effective unless approved by a majority of the Board of
Directors.
(d) Termination of Prior Employment Agreements. All prior employment
agreements between Executive and Company and/or any of its affiliates (and any
of their predecessors) are hereby terminated as of the date hereof as fully
performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall inure to
the benefit of and shall be binding upon the Company and its successors and
permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
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(j) Controlling Law. This Agreement is made under, and shall
be governed by, construed and enforced in accordance with, the substantive laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree that any
claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall the single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or any other right, remedy, power or privilege, nor shall
any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(n) Legal Expenses. In the event that the Executive institutes any
legal action to enforce his rights under, or to recover damages for breach of
this Agreement, the Executive, if
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he is the prevailing party, shall be entitled to recover from the Company any
actual expenses for attorney's fees and disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
_________________________________ By:______________________________________
Secretary President
(Corporate Seal)
EXECUTIVE:
_________________________________________
Senior Vice President and Chief Financial
Officer
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SENIOR EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998
by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with
its principal place of business at 101 East State Street, Kennett Square, PA
19348 (the "Company"), and Richard R. Howard (the "Executive").
WITNESSETH
The Company desires to continue to employ the Executive as an employee
of the Company, and the Executive desires to continue to provide services to the
Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as Vice Chairman of the Company. The Executive accepts such
employment and agrees to perform the customary responsibilities of such position
during the term of this Agreement. The Executive will perform such other duties
as may from time to time be reasonably assigned to him by the Board, provided
such duties are consistent with and do not interfere with the performance of the
duties described herein and are of a type customarily performed by persons of
similar titles with similar corporations. Nothing in this Agreement shall
preclude Executive from serving as a director, trustee, officer of, or partner
in, any other firm, trust, corporation or partnership or from pursuing personal
investments, as long as such activities do not interfere with Executive's
performance of his duties hereunder.
2. Period of Employment.
(a) Period of Employment. The period of the Executive's
employment under this Agreement shall commence on the date hereof and shall,
unless sooner terminated pursuant to Section 4, continue for a three year period
ending on August 12, 2001 (such period, as extended from time to time, herein
referred to as the "Term"). Subject to Section 2(b), and if the Term has not
been terminated pursuant to Section 4, on August 12, 2000 and on each August 12
thereafter the Term shall be extended for an additional period of one year so
that, at anytime, the Term shall be for at least three (3) years.
(b) Termination of Automatic Extension by Notice. The Company
(with the affirmative vote of two-thirds of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
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3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. The
Compensation Committee of the Board of Directors shall review Executive's base
salary on an annual basis and make recommendations with respect to increases in
base salary to the Board of Directors. Any increase in base salary shall not
reduce or limit any other obligation of the Company hereunder. Executive's
annual base salary payable hereunder, as it may be increased from time to time
and without reduction for any amounts deferred as described below, is referred
to herein as "Base Salary". Executive's Base Salary, as in effect from time to
time, may not be reduced by the Company without Executive's consent, provided
that the Base Salary payable under this paragraph shall be reduced to the extent
Executive elects to defer or reduce such salary under the terms of any deferred
compensation or savings plan or other employee benefit arrangement maintained or
established by the Company. The Company shall pay Executive the portion of his
Base Salary not deferred in accordance with its customary periodic payroll
practices.
(b) Incentive Compensation. Executive shall be eligible to
receive incentive compensation in the form of stock options in amounts
determined from time to time by the Stock Option Subcommittee of the
Compensation Committee of the Board of Directors, subject to the approval of the
Board of Directors.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be
eligible to participate in (1) each welfare benefit plan sponsored or maintained
by the Company, including, without limitation, each life, hospitalization,
medical, dental, health, accident or disability insurance or similar plan or
program of the Company, and (2) each pension, profit sharing, retirement,
deferred compensation or savings plan sponsored or maintained by the Company, in
each case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. Without in any way limiting the foregoing,
Executive shall be provided with term life insurance providing a $3,000,000
death benefit to Executive's designated beneficiaries. With respect to the
pension or retirement benefits payable to Executive, Executive's service
credited for purposes of determining Executive's benefits and vesting shall be
determined in accordance with the terms of the applicable plan or program.
Nothing in this Section 3(c), in and of itself, shall be construed to limit the
ability of the Company to amend or terminate any particular plan, program or
arrangement.
(ii) Vacation. During the Term, the Executive shall
be entitled to the number of paid vacation days in each calendar year determined
by the Company from time to time for its senior executive officers, but not less
than five weeks in any calendar year.
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The Executive shall also be entitled to all paid holidays given by the Company
to its senior officers. Vacation days which are not used during any calendar
year may not be accrued, nor shall Executive be entitled to compensation for
unused vacation days.
(iii) Perquisites. During the Term, Executive shall
be entitled to receive such perquisites (e.g., fringe benefits) as are generally
provided to other senior officers of the Company in accordance with the then
current policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company
shall pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
reasonably require and in accordance with the generally applicable policies and
practices of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the
Corporation for "Cause" shall mean termination by action of at least two-thirds
of the members of the Board of Directors of the Company at a meeting duly called
and held upon at least 15 days' prior written notice to Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" (and at
which meeting Executive and his counsel were entitled to be present and given
reasonable opportunity to be heard) because of (i) Executive's conviction of any
felony (whether or not involving the Company or any of its subsidiaries)
involving moral turpitude which subjects, or if generally known, would subject,
the Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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(c) Death or Disability. If Executive dies, his employment
shall terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of
any duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's
Base Salary as in effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement;
(iii) a relocation of the Executive's principal place
of employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section
6 hereof);
(v) any material failure by the Company to comply
with any of the provisions of this Agreement;
(vi) any termination of the Executive's employment
for reasons other than death, disability or Cause or the termination by the
Board of Directors of the Automatic Extension pursuant to Section 2(b) of this
Agreement
(vii) the commencement of a proceeding or case, with
or without the application or consent of the Company or any of its subsidiaries,
in any court or competent jurisdiction, seeking (A) the liquidation,
reorganization, dissolution or winding-up of the Company or its subsidiaries, or
the composition or readjustment of the debts of the Company or
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its subsidiaries, (B) the appointment of a trustee, receiver, custodian,
liquidator or the like for the Company or its subsidiaries or of all or any
substantial part of their respective assets, or (C) any similar relief in
respect of the Company or its subsidiaries under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company for disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period), (ii) if Executive's employment is
terminated due to Executive's death, on the date of death; (iii) if the
Executive's employment is terminated for Good Reason as a result of a Change of
Control, as set forth in Section 6 hereof; or (iv) if the Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which shall not be less than 90 nor more than 180 days from the
date such Notice of Termination is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
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(c) Termination by Executive for Good Reason or by the
Company for Reasons other than for Cause, Death or
Disability.
(i) In the event (1) the Company terminates the Term
without cause, or (2) the Executive terminates the Term for Good Reason, then
(I) the Company shall make a lump-sum payment to the Executive equal to (x) the
Base Salary payable to him for the greater of the remainder of the Term or three
(3) years plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the three year
period immediately preceding such termination, provided that the value
attributed to such stock options shall not exceed one hundred percent (100%) of
Executive's average base salary for the three year period preceding the
termination of the Term, multiplied by three; and (II) all stock options, stock
awards and similar equity rights, if any, shall vest and become exercisable
immediately prior to the termination of the Term and remain exercisable through
their original terms with all rights.
(ii) Following termination of the Term for any
reason, other than for Cause or upon the death of the Executive, the Company
shall also maintain in full force and effect, for the continued benefit of the
Executive for a period equal to the greater of (x) the period of the Term
otherwise remaining or (y) two (2) years without giving effect to such
termination, all employee benefit plans and programs to which the Executive was
entitled prior to the date of termination (including, without limitation, the
benefit plans and programs provided for herein) if the Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that the Executive's participation in any such plan
or program is barred by the terms thereof, the Company shall pay to the
Executive an amount equal to the annual contribution, payments, credits or
allocations made by the Company to him, to his account or on his behalf under
such plans and programs from which his continued participation is barred except
that if the Executive's participation in any health, medical, life insurance or
disability plan or program is barred, the Company shall obtain and pay for, on
the Executive's behalf, individual insurance plans, policies or programs which
provide to the Executive health, medical, life and disability insurance coverage
which is equivalent to the insurance coverage to which the Executive was
entitled prior to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive
may terminate the Term upon notice to the Company, effective as set forth in
such notice (i) for any reason or for no reason during the initial ninety (90)
day period following the date of such Change of Control, or (ii) at any time,
within twenty-four (24) months following the date of a Change of Control, if any
other event constituting Good Reason hereunder continues for more than ten (10)
days after the Executive delivers notice thereof to the Company. The failure of
Executive to exercise his rights hereunder following an event constituting a
Change of Control shall not preclude Executive from exercising such rights
following the occurrence of a subsequent Change of Control event, even if
related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement
(including, without limitation, any "lock-up" or voting agreement with any of
the Company's principal stockholders) which contemplates a transaction, or (ii)
the commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of
Control" shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
used in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any subsidiary
thereof and any employee benefit plan sponsored or maintained by the Company or
any subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities of the Company
representing 25 percent or more of the combined voting power of the Company's
then outstanding securities;
(ii) when, during any period of 24 consecutive months
after the date of this Agreement, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority thereof; provided that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
6(d)(ii); or
(iii) the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, in the opinion of independent tax counsel reasonably acceptable to the
Company, there is no reasonable basis for taking the position that any such
payment is not subject to the Excise Tax under U.S. tax law then in effect. If
the Internal Revenue Service makes a claim that any payment or portion thereof
is subject to the Excise Tax, at the Company's election, and the Company's
direction and expense, the Executive shall contest such claim; provided,
however, that the Company shall advance to the Executive the costs and expenses
of such contest, as incurred. For the purpose of determining the amount of any
payment under clause (ii) of the first sentence of this paragraph, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation applicable to individuals in the calendar year in which
such indemnity payment is to be made and state and local income taxes at the
highest marginal rates of taxation applicable to individuals as are in effect in
the jurisdiction in which the Executive is resident, net of the reduction in
federal income taxes that is obtained from deduction of such state and local
taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term,
Executive shall keep confidential and shall not, except with the Company's
express prior written consent, or except in the proper course of his employment
with the Company, directly or indirectly, communicate, disclose, divulge,
publish, or otherwise express, to any Person, or use for his own benefit or the
benefit of any Person, any trade secrets, confidential or proprietary knowledge
or information, no matter when or how acquired concerning the conduct and
details of the Company's business, including without limitation, names of
customers and suppliers, marketing methods, trade secrets, policies, prospects
and financial condition. For purposes of this Section 8, confidential
information shall not include any information which is now known by or readily
available to the general public or which becomes known by or readily available
to the general public other than as a result of any improper act or omission of
Executive.
(b) Non-Competition. During the Term hereof and for a period
of two (2) years thereafter, Executive shall not, except with Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
(i) Solicit any Person who is or during such period
becomes a customer, supplier, employee, salesman, agent or representative of
Company, in any manner which interferes or might interfere with such Person's
relationship with Company, or in an effort to obtain such Person as a customer,
supplier, employee, salesman, agent, or representative of
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any business in competition with Company within 15 miles of any office or
facility owned, leased or operated by Company.
(ii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him
of any of the covenants and agreements of this Section 8 ("Covenants") will
result in irreparable injury to Employer for which money damages could not
adequately compensate Company, and therefore, in the event of any such breach,
Company shall be entitled, in addition to all other rights and remedies which
Company may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining Executive and/or all other Persons
involved therein from continuing such breach. The existence of any claim or
cause of action which Executive or any such other Person may have against
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants. If Company is obliged to resort to litigation to enforce any of the
Covenants which has a fixed term, then such term shall be extended for a period
of time equal to the period during which a material breach of such Covenant was
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a material breach occurred, or, if later, the last
day of the original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application
is construed to be invalid, illegal or unenforceable, then the other portions
and their application shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to reduce
or limit such scope, duration, area or other factor, and such Covenant shall
then be enforceable in its reduced or limited form.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination, or otherwise. The amounts payable to Executive under
Section 5 hereof shall not be treated as damages but as severance compensation
to which, Executive is entitled by reason of termination of his employment in
the circumstances contemplated by this Agreement.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Attention: Chairman and Chief Executive Officer
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
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If to Executive, to:
Richard R. Howard
2280 S. Chester Springs Road
Chester Springs, PA 19425
(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended,
modified, supplemented or terminated except in writing signed by both parties.
No action taken by Company hereunder, including without limitation any waiver,
consent or approval, shall be effective unless approved by a majority of the
Board of Directors.
(d) Termination of Prior Employment Agreements. All prior
employment agreements between Executive and Company and/or any of its affiliates
(and any of their predecessors) are hereby terminated as of the date hereof as
fully performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall
inure to the benefit of and shall be binding upon the Company and its successors
and permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
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(j) Controlling Law. This Agreement is made under, and shall
be governed by, construed and enforced in accordance with, the substantive laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree
that any claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall the single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(n) Legal Expenses. In the event that the Executive institutes
any legal action to enforce his rights under, or to recover damages for breach
of this Agreement, the Executive, if
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he is the prevailing party, shall be entitled to recover from the Company any
actual expenses for attorney's fees and disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
By:
- ---------------------------------- -------------------------------
(Corporate Seal)
EXECUTIVE:
----------------------------------
Vice Chairman
<PAGE>
EXHIBIT 10.60
SENIOR EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 12, 1998
by and between Genesis Health Ventures, Inc., a Pennsylvania corporation with
its principal place of business at 101 East State Street, Kennett Square, PA
19348 (the "Company"), and David C. Barr (the "Executive").
WITNESSETH
The Company desires to continue to employ the Executive as an employee
of the Company, and the Executive desires to continue to provide services to the
Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as Vice Chairman of the Company. The Executive accepts such
employment and agrees to perform the customary responsibilities of such position
during the term of this Agreement. The Executive will perform such other duties
as may from time to time be reasonably assigned to him by the Board, provided
such duties are consistent with and do not interfere with the performance of the
duties described herein and are of a type customarily performed by persons of
similar titles with similar corporations. Nothing in this Agreement shall
preclude Executive from serving as a director, trustee, officer of, or partner
in, any other firm, trust, corporation or partnership or from pursuing personal
investments, as long as such activities do not interfere with Executive's
performance of his duties hereunder.
2. Period of Employment.
(a) Period of Employment. The period of the Executive's
employment under this Agreement shall commence on the date hereof and shall,
unless sooner terminated pursuant to Section 4, continue for a three year period
ending on August 12, 2001 (such period, as extended from time to time, herein
referred to as the "Term"). Subject to Section 2(b), and if the Term has not
been terminated pursuant to Section 4, on August 12, 2000 and on each August 12
thereafter the Term shall be extended for an additional period of one year so
that, at anytime, the Term shall be for at least three (3) years.
(b) Termination of Automatic Extension by Notice. The Company
(with the affirmative vote of two-thirds of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. The
Compensation Committee of the Board of Directors shall review Executive's base
salary on an annual basis and make recommendations with respect to increases in
base salary to the Board of Directors. Any increase in base salary shall not
reduce or limit any other obligation of the Company hereunder. Executive's
annual base salary payable hereunder, as it may be increased from time to time
and without reduction for any amounts deferred as described below, is referred
to herein as "Base Salary". Executive's Base Salary, as in effect from time to
time, may not be reduced by the Company without Executive's consent, provided
that the Base Salary payable under this paragraph shall be reduced to the extent
Executive elects to defer or reduce such salary under the terms of any deferred
compensation or savings plan or other employee benefit arrangement maintained or
established by the Company. The Company shall pay Executive the portion of his
Base Salary not deferred in accordance with its customary periodic payroll
practices.
(b) Incentive Compensation. Executive shall be eligible to
receive incentive compensation in the form of stock options in amounts
determined from time to time by the Stock Option Subcommittee of the
Compensation Committee of the Board of Directors, subject to the approval of the
Board of Directors.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be eligible
to participate in (1) each welfare benefit plan sponsored or maintained by the
Company, including, without limitation, each life, hospitalization, medical,
dental, health, accident or disability insurance or similar plan or program of
the Company, and (2) each pension, profit sharing, retirement, deferred
compensation or savings plan sponsored or maintained by the Company, in each
case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. Without in any way limiting the foregoing,
Executive shall be provided with term life insurance providing a $3,000,000
death benefit to Executive's designated beneficiaries. With respect to the
pension or retirement benefits payable to Executive, Executive's service
credited for purposes of determining Executive's benefits and vesting shall be
determined in accordance with the terms of the applicable plan or program.
Nothing in this Section 3(c), in and of itself, shall be construed to limit the
ability of the Company to amend or terminate any particular plan, program or
arrangement.
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(ii) Vacation. During the Term, the Executive shall be
entitled to the number of paid vacation days in each calendar year determined by
the Company from time to time for its senior executive officers, but not less
than five weeks in any calendar year. The Executive shall also be entitled to
all paid holidays given by the Company to its senior officers. Vacation days
which are not used during any calendar year may not be accrued, nor shall
Executive be entitled to compensation for unused vacation days.
(iii) Perquisites. During the Term, Executive shall be
entitled to receive such perquisites (e.g., fringe benefits) as are generally
provided to other senior officers of the Company in accordance with the then
current policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company shall
pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
reasonably require and in accordance with the generally applicable policies and
practices of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the
Corporation for "Cause" shall mean termination by action of at least two-thirds
of the members of the Board of Directors of the Company at a meeting duly called
and held upon at least 15 days' prior written notice to Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" (and at
which meeting Executive and his counsel were entitled to be present and given
reasonable opportunity to be heard) because of (i) Executive's conviction of any
felony (whether or not involving the Company or any of its subsidiaries)
involving moral turpitude which subjects, or if generally known, would subject,
the Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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(c) Death or Disability. If Executive dies, his employment
shall terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of any
duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's Base
Salary as in effect on the date hereof or as the same may be increased from time
to time during the term of this Agreement;
(iii) a relocation of the Executive's principal place of
employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section 6
hereof);
(v) any material failure by the Company to comply with any
of the provisions of this Agreement;
(vi) any termination of the Executive's employment for
reasons other than death, disability or Cause or the termination by the Board of
Directors of the Automatic Extension pursuant to Section 2(b) of this Agreement
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(vii) the commencement of a proceeding or case, with or
without the application or consent of the Company or any of its subsidiaries, in
any court or competent jurisdiction, seeking (A) the liquidation,
reorganization, dissolution or winding-up of the Company or its subsidiaries, or
the composition or readjustment of the debts of the Company or its subsidiaries,
(B) the appointment of a trustee, receiver, custodian, liquidator or the like
for the Company or its subsidiaries or of all or any substantial part of their
respective assets, or (C) any similar relief in respect of the Company or its
subsidiaries under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company for disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period), (ii) if Executive's employment is
terminated due to Executive's death, on the date of death; (iii) if the
Executive's employment is terminated for Good Reason as a result of a Change of
Control, as set forth in Section 6 hereof; or (iv) if the Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which shall not be less than 90 nor more than 180 days from the
date such Notice of Termination is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
<PAGE>
(c) Termination by Executive for Good Reason or by the Company
for Reasons other than for Cause, Death or Disability.
(i) In the event (1) the Company terminates the Term
without cause, or (2) the Executive terminates the Term for Good Reason, then
(I) the Company shall make a lump-sum payment to the Executive equal to (x) the
Base Salary payable to him for the greater of the remainder of the Term or three
(3) years plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the three year
period immediately preceding such termination, provided that the value
attributed to such stock options shall not exceed one hundred percent (100%) of
Executive's average base salary for the three year period preceding the
termination of the Term, multiplied by three; and (II) all stock options, stock
awards and similar equity rights, if any, shall vest and become exercisable
immediately prior to the termination of the Term and remain exercisable through
their original terms with all rights.
(ii) Following termination of the Term for any reason,
other than for Cause or upon the death of the Executive, the Company shall also
maintain in full force and effect, for the continued benefit of the Executive
for a period equal to the greater of (x) the period of the Term otherwise
remaining or (y) two (2) years without giving effect to such termination, all
employee benefit plans and programs to which the Executive was entitled prior to
the date of termination (including, without limitation, the benefit plans and
programs provided for herein) if the Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Executive's participation in any such plan or program is
barred by the terms thereof, the Company shall pay to the Executive an amount
equal to the annual contribution, payments, credits or allocations made by the
Company to him, to his account or on his behalf under such plans and programs
from which his continued participation is barred except that if the Executive's
participation in any health, medical, life insurance or disability plan or
program is barred, the Company shall obtain and pay for, on the Executive's
behalf, individual insurance plans, policies or programs which provide to the
Executive health, medical, life and disability insurance coverage which is
equivalent to the insurance coverage to which the Executive was entitled prior
to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive
may terminate the Term upon notice to the Company, effective as set forth in
such notice (i) for any reason or for no reason during the initial ninety (90)
day period following the date of such Change of Control, or (ii) at any time,
within twenty-four (24) months following the date of a Change of Control, if any
other event constituting Good Reason hereunder continues for more than ten (10)
days after the Executive delivers notice thereof to the Company. The failure of
Executive to exercise his rights hereunder following an event constituting a
Change of Control shall not preclude Executive from exercising such rights
following the occurrence of a subsequent Change of Control event, even if
related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement
(including, without limitation, any "lock-up" or voting agreement with any of
the Company's principal stockholders) which contemplates a transaction, or (ii)
the commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of
Control" shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d)
of the Exchange Act but excluding the Company and any subsidiary thereof and any
employee benefit plan sponsored or maintained by the Company or any subsidiary
(including any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
as amended from time to time), of securities of the Company representing 25
percent or more of the combined voting power of the Company's then outstanding
securities;
(ii) when, during any period of 24 consecutive months
after the date of this Agreement, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority thereof; provided that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
6(d)(ii); or
(iii) the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, in the opinion of independent tax counsel reasonably acceptable to the
Company, there is no reasonable basis for taking the position that any such
payment is not subject to the Excise Tax under U.S. tax law then in effect. If
the Internal Revenue Service makes a claim that any payment or portion thereof
is subject to the Excise Tax, at the Company's election, and the Company's
direction and expense, the Executive shall contest such claim; provided,
however, that the Company shall advance to the Executive the costs and expenses
of such contest, as incurred. For the purpose of determining the amount of any
payment under clause (ii) of the first sentence of this paragraph, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation applicable to individuals in the calendar year in which
such indemnity payment is to be made and state and local income taxes at the
highest marginal rates of taxation applicable to individuals as are in effect in
the jurisdiction in which the Executive is resident, net of the reduction in
federal income taxes that is obtained from deduction of such state and local
taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term,
Executive shall keep confidential and shall not, except with the Company's
express prior written consent, or except in the proper course of his employment
with the Company, directly or indirectly, communicate, disclose, divulge,
publish, or otherwise express, to any Person, or use for his own benefit or the
benefit of any Person, any trade secrets, confidential or proprietary knowledge
or information, no matter when or how acquired concerning the conduct and
details of the Company's business, including without limitation, names of
customers and suppliers, marketing methods, trade secrets, policies, prospects
and financial condition. For purposes of this Section 8, confidential
information shall not include any information which is now known by or readily
available to the general public or which becomes known by or readily available
to the general public other than as a result of any improper act or omission of
Executive.
(b) Non-Competition. During the Term hereof and for a period
of two (2) years thereafter, Executive shall not, except with Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
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(i) Solicit any Person who is or during such period
becomes a customer, supplier, employee, salesman, agent or representative of
Company, in any manner which interferes or might interfere with such Person's
relationship with Company, or in an effort to obtain such Person as a customer,
supplier, employee, salesman, agent, or representative of any business in
competition with Company within 15 miles of any office or facility owned, leased
or operated by Company.
(ii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him
of any of the covenants and agreements of this Section 8 ("Covenants") will
result in irreparable injury to Employer for which money damages could not
adequately compensate Company, and therefore, in the event of any such breach,
Company shall be entitled, in addition to all other rights and remedies which
Company may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining Executive and/or all other Persons
involved therein from continuing such breach. The existence of any claim or
cause of action which Executive or any such other Person may have against
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants. If Company is obliged to resort to litigation to enforce any of the
Covenants which has a fixed term, then such term shall be extended for a period
of time equal to the period during which a material breach of such Covenant was
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a material breach occurred, or, if later, the last
day of the original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application
is construed to be invalid, illegal or unenforceable, then the other portions
and their application shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to reduce
or limit such scope, duration, area or other factor, and such Covenant shall
then be enforceable in its reduced or limited form.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
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(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Date of Termination, or otherwise.
The amounts payable to Executive under Section 5 hereof shall not be treated as
damages but as severance compensation to which, Executive is entitled by reason
of termination of his employment in the circumstances contemplated by this
Agreement.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Attention: Chairman and Chief Executive Officer
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
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If to Executive, to:
David C. Barr
45 Blue Stone Drive
Chadds Ford, PA 19317
(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended,
modified, supplemented or terminated except in writing signed by both parties.
No action taken by Company hereunder, including without limitation any waiver,
consent or approval, shall be effective unless approved by a majority of the
Board of Directors.
(d) Termination of Prior Employment Agreements. All prior
employment agreements between Executive and Company and/or any of its affiliates
(and any of their predecessors) are hereby terminated as of the date hereof as
fully performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall
inure to the benefit of and shall be binding upon the Company and its successors
and permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
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(j) Controlling Law. This Agreement is made under, and shall
be governed by, construed and enforced in accordance with, the substantive laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree
that any claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall the single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
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(n) Legal Expenses. In the event that the Executive institutes
any legal action to enforce his rights under, or to recover damages for breach
of this Agreement, the Executive, if he is the prevailing party, shall be
entitled to recover from the Company any actual expenses for attorney's fees and
disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
___________________________ By: _______________________________
Secretary President
(Corporate Seal)
EXECUTIVE:
____________________________________
Vice Chairman
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 11,
1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation
with its principal place of business at 101 East State Street, Kennett Square,
PA 19348 (the "Company"), and Michael G. Bronfein (the "Executive").
WITNESSETH
The Company desires to employ the Executive as an employee of the
Company, and the Executive desires to provide services to the Company, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as President-NeighborCare. The Executive accepts such
employment and agrees to perform the customary responsibilities of such position
during the term of this Agreement. The Executive will perform such other duties
as may from time to time be reasonably assigned to him by the Board, provided
such duties are consistent with and do not interfere with the performance of the
duties described herein and are of a type customarily performed by persons of
similar titles with similar corporations. Nothing in this Agreement shall
preclude Executive from serving as a director, trustee, officer of, or partner
in, any other firm, trust, corporation or partnership or from pursuing personal
investments, as long as such activities do not interfere with Executive's
performance of his duties hereunder
2. Period of Employment.
(a) Period of Employment. The period of the Executive's
employment under this Agreement shall commence on the date hereof and shall,
unless sooner terminated pursuant to Section 4, continue for a two year period
ending on November 11, 2000 (such period, as extended from time to time, herein
referred to as the "Term"). Subject to Section 2(b), and if the Term has not
been terminated pursuant to Section 4, on November 11, 1999 and on each November
11 thereafter the Term shall be extended for an additional period of one year so
that, at any time, the Term shall be for at least two (2) years.
(b) Termination of Automatic Extension by Notice. The Company
(with the affirmative vote of two-thirds of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. Executive's
base salary shall be reviewed on an annual basis and the Company shall increase
such base salary, by an amount, if any, it determines to be appropriate. Any
such increase shall not reduce or limit any other obligation of the Company
hereunder. Executive's annual base salary payable hereunder, as it may be
increased from time to time and without reduction for any amounts deferred as
described below, is referred to herein as "Base Salary". Executive's Base
Salary, as in effect from time to time, may not be reduced by the Company
without Executive's consent, provided that the Base Salary payable under this
paragraph shall be reduced to the extent Executive elects to defer or reduce
such salary under the terms of any deferred compensation or savings plan or
other employee benefit arrangement maintained or established by the Company. The
Company shall pay Executive the portion of his Base Salary not deferred in
accordance with its customary periodic payroll practices.
(b) Incentive Compensation. Executive shall be eligible to
participate in stock option, incentive compensation and other plans at a level
consistent with Executive's position with the Company and the Company's then
current policies and practices.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be
eligible to participate in (1) each welfare benefit plan sponsored or maintained
by the Company, including, without limitation, each life, hospitalization,
medical, dental, health, accident or disability insurance or similar plan or
program of the Company, and (2) each pension, profit sharing, retirement,
deferred compensation or savings plan sponsored or maintained by the Company, in
each case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. With respect to the pension or retirement
benefits payable to Executive, Executive's service credited for purposes of
determining Executive's benefits and vesting shall be determined in accordance
with the terms of the applicable plan or program. Nothing in this Section 3(c),
in and of itself, shall be construed to limit the ability of the Company to
amend or terminate any particular plan, program or arrangement.
(ii) Vacation. During the Term, the Executive shall
be entitled to the number of paid vacation days in each calendar year determined
by the Company from time to time for its senior executive officers, but not less
than four (4) weeks in any calendar year. The Executive shall also be entitled
to all paid holidays given by the Company to its senior officers.
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Vacation days which are not used during any calendar year may not be accrued,
nor shall Executive be entitled to compensation for unused vacation days.
(iii) Perquisites. During the Term, Executive shall
be entitled to receive such perquisites (e.g., fringe benefits) as are generally
provided to other senior officers of the Company in accordance with the then
current policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company
shall pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
reasonably require and in accordance with the generally applicable policies and
practices of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the
Corporation for "Cause" shall mean termination by action of at least two-thirds
of the members of the Board of Directors of the Company at a meeting duly called
and held upon at least 15 days' prior written notice to Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" (and at
which meeting Executive and his counsel were entitled to be present and given
reasonable opportunity to be heard) because of (i) Executive's conviction of any
felony (whether or not involving the Company or any of its subsidiaries)
involving moral turpitude which subjects, or if generally known, would subject,
the Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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<PAGE>
(c) Death or Disability. If Executive dies, his employment
shall terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of
any duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's
Base Salary as in effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement;
(iii) a relocation of the Executive's principal place
of employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section
6 hereof);
(v) any material failure by the Company to comply
with any of the provisions of this Agreement;
(vi) any termination of the Executive's employment
for reasons other than death, disability or Cause or the termination by the
Board of Directors of the Automatic Extension pursuant to Section 2(b) of this
Agreement;
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(vii) the commencement of a proceeding or case, with
or without the application or consent of the Company or any of its subsidiaries,
in any court or competent jurisdiction, seeking (A) the liquidation,
reorganization, dissolution or winding-up of the Company or its subsidiaries, or
the composition or readjustment of the debts of the Company or its subsidiaries,
(B) the appointment of a trustee, receiver, custodian, liquidator or the like
for the Company or its subsidiaries or of all or any substantial part of their
respective assets, or (C) any similar relief in respect of the Company or its
subsidiaries under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company for disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period), (ii) if Executive's employment is
terminated due to Executive's death, on the date of death; (iii) if the
Executive's employment is terminated for Good Reason as a result of a Change of
Control, as set forth in Section 6 hereof; or (iv) if the Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which shall not be less than 90 nor more than 180 days from the
date such Notice of Termination is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
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<PAGE>
(c) Termination by Executive for Good Reason or by the Company
for Reasons other than for Cause or Death.
(i) In the event (1) the Company terminates the Term
without cause, or (2) the Executive terminates the Term for Good Reason, then
(I) the Company shall make a lump-sum payment to the Executive equal to (x) the
Base Salary payable to him for the greater of the remainder of the Term or two
(2) years plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the two year period
immediately preceding such termination, provided that the value attributed to
such stock options shall not exceed sixty percent (60%) of Executive's average
Base Salary for the two year period preceding the termination of the Term,
multiplied by two; and (II) all stock options, stock awards and similar equity
rights, if any, shall vest and become exercisable immediately prior to the
termination of the Term and remain exercisable through their original terms with
all rights.
(ii) Following termination of the Term for any
reason, other than for Cause or upon the death of the Executive, the Company
shall also maintain in full force and effect, for the continued benefit of the
Executive for a period equal to the greater of (x) the period of the Term
otherwise remaining or (y) two (2) years without giving effect to such
termination, all employee benefit plans and programs to which the Executive was
entitled prior to the date of termination (including, without limitation, the
benefit plans and programs provided for herein) if the Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that the Executive's participation in any such plan
or program is barred by the terms thereof, the Company shall pay to the
Executive an amount equal to the annual contribution, payments, credits or
allocations made by the Company to him, to his account or on his behalf under
such plans and programs from which his continued participation is barred except
that if the Executive's participation in any health, medical, life insurance or
disability plan or program is barred, the Company shall obtain and pay for, on
the Executive's behalf, individual insurance plans, policies or programs which
provide to the Executive health, medical, life and disability insurance coverage
which is equivalent to the insurance coverage to which the Executive was
entitled prior to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive
may terminate the Term upon notice to the Company, effective as set forth in
such notice if at any time, within twenty-four (24) months following the date of
a Change of Control, any other event constituting Good Reason hereunder
continues for more than ten (10) days after the Executive delivers notice
thereof to the Company. The failure of Executive to exercise his rights
hereunder following an event constituting a Change of Control shall not preclude
Executive from exercising such rights following the occurrence of a subsequent
Change of Control event, even if related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement
(including, without limitation, any "lock-up" or voting agreement with any of
the Company's principal stockholders) which contemplates a transaction, or (ii)
the commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of
Control" shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
used in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any subsidiary
thereof and any employee benefit plan sponsored or maintained by the Company or
any subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities of the Company
representing 25 percent or more of the combined voting power of the Company's
then outstanding securities;
(ii) when, during any period of 24 consecutive months
after the date of this Agreement, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority thereof; provided that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
6(d)(ii); or
(iii) the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, independent tax counsel reasonably acceptable to the Company determines
after consultation with counsel for the Company that there is no reasonable
basis for taking the position that any such payment is not subject to the Excise
Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a
claim that any payment or portion thereof is subject to the Excise Tax, at the
Company's election, and the Company's direction and expense, the Executive shall
contest such claim; provided, however, that the Company shall advance to the
Executive the costs and expenses of such contest, as incurred. For the purpose
of determining the amount of any payment under clause (ii) of the first sentence
of this paragraph, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation applicable to individuals
in the calendar year in which such indemnity payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the jurisdiction in which the Executive is
resident, net of the reduction in federal income taxes that is obtained from
deduction of such state and local taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term,
Executive shall keep confidential and shall not, except with the Company's
express prior written consent, or except in the proper course of his employment
with the Company, directly or indirectly, communicate, disclose, divulge,
publish, or otherwise express, to any Person, or use for his own benefit or the
benefit of any Person, any trade secrets, confidential or proprietary knowledge
or information, no matter when or how acquired concerning the conduct and
details of the Company's business, including without limitation, names of
customers and suppliers, marketing methods, trade secrets, policies, prospects
and financial condition. For purposes of this Section 8, confidential
information shall not include any information which is now known by or readily
available to the general public or which becomes known by or readily available
to the general public other than as a result of any improper act or omission of
Executive.
(b) Non-Competition. During the Term hereof and for a period
of two (2) years thereafter, Executive shall not, except with Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
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(i) Solicit any Person who is or during such period
becomes a customer, supplier, employee, salesman, agent or representative of
Company, in any manner which interferes or might interfere with such Person's
relationship with Company, or in an effort to obtain such Person as a customer,
supplier, employee, salesman, agent, or representative of any business in
competition with Company within 15 miles of any office or facility owned, leased
or operated by Company.
(ii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him
of any of the covenants and agreements of this Section 8 ("Covenants") will
result in irreparable injury to Employer for which money damages could not
adequately compensate Company, and therefore, in the event of any such breach,
Company shall be entitled, in addition to all other rights and remedies which
Company may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining Executive and/or all other Persons
involved therein from continuing such breach. The existence of any claim or
cause of action which Executive or any such other Person may have against
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants. If Company is obliged to resort to litigation to enforce any of the
Covenants which has a fixed term, then such term shall be extended for a period
of time equal to the period during which a material breach of such Covenant was
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a material breach occurred, or, if later, the last
day of the original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application
is construed to be invalid, illegal or unenforceable, then the other portions
and their application shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to reduce
or limit such scope, duration, area or other factor, and such Covenant shall
then be enforceable in its reduced or limited form.
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9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Date of Termination, or otherwise.
The amounts payable to Executive under Section 5 hereof shall not be treated as
damages but as severance compensation to which, Executive is entitled by reason
of termination of his employment in the circumstances contemplated by this
Agreement.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Attention: Chairman and Chief Executive Officer
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
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If to Executive, to:
Michael G. Bronfein
4 Bell Chase Court
Baltimore, MD 21208
(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended,
modified, supplemented or terminated except in writing signed by both parties.
No action taken by Company hereunder, including without limitation any waiver,
consent or approval, shall be effective unless approved by a majority of the
Board of Directors.
(d) Termination of Prior Employment Agreements. All prior
employment agreements between Executive and Company and/or any of its affiliates
(and any of their predecessors) are hereby terminated as of the date hereof as
fully performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall
inure to the benefit of and shall be binding upon the Company and its successors
and permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
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(j) Controlling Law. This Agreement is made under, and shall
be governed by, construed and enforced in accordance with, the substantive laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree
that any claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall the single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
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(n) Legal Expenses. In the event that the Executive institutes
any legal action to enforce his rights under, or to recover damages for breach
of this Agreement, the Executive, if he is the prevailing party, shall be
entitled to recover from the Company any actual expenses for attorney's fees and
disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
_____________________________ By:____________________________________
Secretary President
(Corporate Seal)
EXECUTIVE:
_______________________________________
President-NeighborCare
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 11,
1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation
with its principal place of business at 101 East State Street, Kennett Square,
PA 19348 (the "Company"), and Maryann Timon (the "Executive").
WITNESSETH
The Company desires to employ the Executive as an employee of the
Company, and the Executive desires to provide services to the Company, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as Senior Vice President-Managed Care Group. The Executive
accepts such employment and agrees to perform the customary responsibilities of
such position during the term of this Agreement. The Executive will perform such
other duties as may from time to time be reasonably assigned to him by the
Board, provided such duties are consistent with and do not interfere with the
performance of the duties described herein and are of a type customarily
performed by persons of similar titles with similar corporations. Nothing in
this Agreement shall preclude Executive from serving as a director, trustee,
officer of, or partner in, any other firm, trust, corporation or partnership or
from pursuing personal investments, as long as such activities do not interfere
with Executive's performance of his duties hereunder
2. Period of Employment.
(a) Period of Employment. The period of the Executive's
employment under this Agreement shall commence on the date hereof and shall,
unless sooner terminated pursuant to Section 4, continue for a two year period
ending on November 11, 2000 (such period, as extended from time to time, herein
referred to as the "Term"). Subject to Section 2(b), and if the Term has not
been terminated pursuant to Section 4, on November 11, 1999 and on each November
11 thereafter the Term shall be extended for an additional period of one year so
that, at any time, the Term shall be for at least two (2) years.
(b) Termination of Automatic Extension by Notice. The Company
(with the affirmative vote of two-thirds of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. Executive's
base salary shall be reviewed on an annual basis and the Company shall increase
such base salary, by an amount, if any, it determines to be appropriate. Any
such increase shall not reduce or limit any other obligation of the Company
hereunder. Executive's annual base salary payable hereunder, as it may be
increased from time to time and without reduction for any amounts deferred as
described below, is referred to herein as "Base Salary". Executive's Base
Salary, as in effect from time to time, may not be reduced by the Company
without Executive's consent, provided that the Base Salary payable under this
paragraph shall be reduced to the extent Executive elects to defer or reduce
such salary under the terms of any deferred compensation or savings plan or
other employee benefit arrangement maintained or established by the Company. The
Company shall pay Executive the portion of his Base Salary not deferred in
accordance with its customary periodic payroll practices.
(b) Incentive Compensation. Executive shall be eligible to
participate in stock option, incentive compensation and other plans at a level
consistent with Executive's position with the Company and the Company's then
current policies and practices.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be
eligible to participate in (1) each welfare benefit plan sponsored or maintained
by the Company, including, without limitation, each life, hospitalization,
medical, dental, health, accident or disability insurance or similar plan or
program of the Company, and (2) each pension, profit sharing, retirement,
deferred compensation or savings plan sponsored or maintained by the Company, in
each case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. With respect to the pension or retirement
benefits payable to Executive, Executive's service credited for purposes of
determining Executive's benefits and vesting shall be determined in accordance
with the terms of the applicable plan or program. Nothing in this Section 3(c),
in and of itself, shall be construed to limit the ability of the Company to
amend or terminate any particular plan, program or arrangement.
(ii) Vacation. During the Term, the Executive shall
be entitled to the number of paid vacation days in each calendar year determined
by the Company from time to time for its senior executive officers, but not less
than four (4) weeks in any calendar year. The Executive shall also be entitled
to all paid holidays given by the Company to its senior officers.
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Vacation days which are not used during any calendar year may not be accrued,
nor shall Executive be entitled to compensation for unused vacation days.
(iii) Perquisites. During the Term, Executive shall
be entitled to receive such perquisites (e.g., fringe benefits) as are generally
provided to other senior officers of the Company in accordance with the then
current policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company
shall pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
reasonably require and in accordance with the generally applicable policies and
practices of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the
Corporation for "Cause" shall mean termination by action of at least two-thirds
of the members of the Board of Directors of the Company at a meeting duly called
and held upon at least 15 days' prior written notice to Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" (and at
which meeting Executive and his counsel were entitled to be present and given
reasonable opportunity to be heard) because of (i) Executive's conviction of any
felony (whether or not involving the Company or any of its subsidiaries)
involving moral turpitude which subjects, or if generally known, would subject,
the Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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(c) Death or Disability. If Executive dies, his employment
shall terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of
any duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's
Base Salary as in effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement;
(iii) a relocation of the Executive's principal place
of employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section
6 hereof);
(v) any material failure by the Company to comply
with any of the provisions of this Agreement;
(vi) any termination of the Executive's employment
for reasons other than death, disability or Cause or the termination by the
Board of Directors of the Automatic Extension pursuant to Section 2(b) of this
Agreement;
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(vii) the commencement of a proceeding or case, with
or without the application or consent of the Company or any of its subsidiaries,
in any court or competent jurisdiction, seeking (A) the liquidation,
reorganization, dissolution or winding-up of the Company or its subsidiaries, or
the composition or readjustment of the debts of the Company or its subsidiaries,
(B) the appointment of a trustee, receiver, custodian, liquidator or the like
for the Company or its subsidiaries or of all or any substantial part of their
respective assets, or (C) any similar relief in respect of the Company or its
subsidiaries under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company for disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period), (ii) if Executive's employment is
terminated due to Executive's death, on the date of death; (iii) if the
Executive's employment is terminated for Good Reason as a result of a Change of
Control, as set forth in Section 6 hereof; or (iv) if the Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which shall not be less than 90 nor more than 180 days from the
date such Notice of Termination is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
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(c) Termination by Executive for Good Reason or by the Company
for Reasons other than for Cause or Death.
(i) In the event (1) the Company terminates the Term
without cause, or (2) the Executive terminates the Term for Good Reason, then
(I) the Company shall make a lump-sum payment to the Executive equal to (x) the
Base Salary payable to him for the greater of the remainder of the Term or two
(2) years plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the two year period
immediately preceding such termination, provided that the value attributed to
such stock options shall not exceed sixty percent (60%) of Executive's average
Base Salary for the two year period preceding the termination of the Term,
multiplied by two; and (II) all stock options, stock awards and similar equity
rights, if any, shall vest and become exercisable immediately prior to the
termination of the Term and remain exercisable through their original terms with
all rights.
(ii) Following termination of the Term for any
reason, other than for Cause or upon the death of the Executive, the Company
shall also maintain in full force and effect, for the continued benefit of the
Executive for a period equal to the greater of (x) the period of the Term
otherwise remaining or (y) two (2) years without giving effect to such
termination, all employee benefit plans and programs to which the Executive was
entitled prior to the date of termination (including, without limitation, the
benefit plans and programs provided for herein) if the Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that the Executive's participation in any such plan
or program is barred by the terms thereof, the Company shall pay to the
Executive an amount equal to the annual contribution, payments, credits or
allocations made by the Company to him, to his account or on his behalf under
such plans and programs from which his continued participation is barred except
that if the Executive's participation in any health, medical, life insurance or
disability plan or program is barred, the Company shall obtain and pay for, on
the Executive's behalf, individual insurance plans, policies or programs which
provide to the Executive health, medical, life and disability insurance coverage
which is equivalent to the insurance coverage to which the Executive was
entitled prior to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive
may terminate the Term upon notice to the Company, effective as set forth in
such notice if at any time, within twenty-four (24) months following the date of
a Change of Control, any other event constituting Good Reason hereunder
continues for more than ten (10) days after the Executive delivers notice
thereof to the Company. The failure of Executive to exercise his rights
hereunder following an event constituting a Change of Control shall not preclude
Executive from exercising such rights following the occurrence of a subsequent
Change of Control event, even if related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement
(including, without limitation, any "lock-up" or voting agreement with any of
the Company's principal stockholders) which contemplates a transaction, or (ii)
the commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of
Control" shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
used in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any subsidiary
thereof and any employee benefit plan sponsored or maintained by the Company or
any subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities of the Company
representing 25 percent or more of the combined voting power of the Company's
then outstanding securities;
(ii) when, during any period of 24 consecutive months
after the date of this Agreement, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority thereof; provided that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
6(d)(ii); or
(iii) the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, independent tax counsel reasonably acceptable to the Company determines
after consultation with counsel for the Company that there is no reasonable
basis for taking the position that any such payment is not subject to the Excise
Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a
claim that any payment or portion thereof is subject to the Excise Tax, at the
Company's election, and the Company's direction and expense, the Executive shall
contest such claim; provided, however, that the Company shall advance to the
Executive the costs and expenses of such contest, as incurred. For the purpose
of determining the amount of any payment under clause (ii) of the first sentence
of this paragraph, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation applicable to individuals
in the calendar year in which such indemnity payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the jurisdiction in which the Executive is
resident, net of the reduction in federal income taxes that is obtained from
deduction of such state and local taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term,
Executive shall keep confidential and shall not, except with the Company's
express prior written consent, or except in the proper course of his employment
with the Company, directly or indirectly, communicate, disclose, divulge,
publish, or otherwise express, to any Person, or use for his own benefit or the
benefit of any Person, any trade secrets, confidential or proprietary knowledge
or information, no matter when or how acquired concerning the conduct and
details of the Company's business, including without limitation, names of
customers and suppliers, marketing methods, trade secrets, policies, prospects
and financial condition. For purposes of this Section 8, confidential
information shall not include any information which is now known by or readily
available to the general public or which becomes known by or readily available
to the general public other than as a result of any improper act or omission of
Executive.
(b) Non-Competition. During the Term hereof and for a period
of two (2) years thereafter, Executive shall not, except with Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
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(i) Solicit any Person who is or during such period
becomes a customer, supplier, employee, salesman, agent or representative of
Company, in any manner which interferes or might interfere with such Person's
relationship with Company, or in an effort to obtain such Person as a customer,
supplier, employee, salesman, agent, or representative of any business in
competition with Company within 15 miles of any office or facility owned, leased
or operated by Company.
(ii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him
of any of the covenants and agreements of this Section 8 ("Covenants") will
result in irreparable injury to Employer for which money damages could not
adequately compensate Company, and therefore, in the event of any such breach,
Company shall be entitled, in addition to all other rights and remedies which
Company may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining Executive and/or all other Persons
involved therein from continuing such breach. The existence of any claim or
cause of action which Executive or any such other Person may have against
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants. If Company is obliged to resort to litigation to enforce any of the
Covenants which has a fixed term, then such term shall be extended for a period
of time equal to the period during which a material breach of such Covenant was
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a material breach occurred, or, if later, the last
day of the original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application
is construed to be invalid, illegal or unenforceable, then the other portions
and their application shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to reduce
or limit such scope, duration, area or other factor, and such Covenant shall
then be enforceable in its reduced or limited form.
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9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Date of Termination, or otherwise.
The amounts payable to Executive under Section 5 hereof shall not be treated as
damages but as severance compensation to which, Executive is entitled by reason
of termination of his employment in the circumstances contemplated by this
Agreement.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Attention: Chairman and Chief Executive Officer
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
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If to Executive, to:
Maryann Timon
201 Lafayette Street
Havre de Grace, MD 21078
(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended,
modified, supplemented or terminated except in writing signed by both parties.
No action taken by Company hereunder, including without limitation any waiver,
consent or approval, shall be effective unless approved by a majority of the
Board of Directors.
(d) Termination of Prior Employment Agreements. All prior
employment agreements between Executive and Company and/or any of its affiliates
(and any of their predecessors) are hereby terminated as of the date hereof as
fully performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall
inure to the benefit of and shall be binding upon the Company and its successors
and permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
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(j) Controlling Law. This Agreement is made under, and shall
be governed by, construed and enforced in accordance with, the substantive laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree
that any claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall the single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
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(n) Legal Expenses. In the event that the Executive institutes
any legal action to enforce his rights under, or to recover damages for breach
of this Agreement, the Executive, if he is the prevailing party, shall be
entitled to recover from the Company any actual expenses for attorney's fees and
disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
___________________________ By:______________________________________
Secretary President
(Corporate Seal)
EXECUTIVE:
_________________________________________
Senior Vice President-Managed Care Group
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 11,
1998 by and between Genesis Health Ventures, Inc., a Pennsylvania corporation
with its principal place of business at 101 East State Street, Kennett Square,
PA 19348 (the "Company"), and Marc D. Rubinger (the "Executive").
WITNESSETH
The Company desires to employ the Executive as an employee of the
Company, and the Executive desires to provide services to the Company, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Offer and Acceptance of Employment. The Company hereby agrees to
employ the Executive as Senior Vice President-Chief Information Officer of the
Company. The Executive accepts such employment and agrees to perform the
customary responsibilities of such position during the term of this Agreement.
The Executive will perform such other duties as may from time to time be
reasonably assigned to him by the Board, provided such duties are consistent
with and do not interfere with the performance of the duties described herein
and are of a type customarily performed by persons of similar titles with
similar corporations. Nothing in this Agreement shall preclude Executive from
serving as a director, trustee, officer of, or partner in, any other firm,
trust, corporation or partnership or from pursuing personal investments, as long
as such activities do not interfere with Executive's performance of his duties
hereunder
2. Period of Employment.
(a) Period of Employment. The period of the Executive's
employment under this Agreement shall commence on the date hereof and shall,
unless sooner terminated pursuant to Section 4, continue for a two year period
ending on November 11, 2000 (such period, as extended from time to time, herein
referred to as the "Term"). Subject to Section 2(b), and if the Term has not
been terminated pursuant to Section 4, on November 11, 1999 and on each November
11 thereafter the Term shall be extended for an additional period of one year so
that, at any time, the Term shall be for at least two (2) years.
(b) Termination of Automatic Extension by Notice. The Company
(with the affirmative vote of two-thirds of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for such
purpose) or the Executive may elect to terminate the automatic extension of the
Term set forth in Section 2(a) ("Automatic Extension") by giving written notice
of such election. Any notice given hereunder must be given not less than three
years prior to the end of the then current Term.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. As long as Executive remains an employee of
Company, Executive will be paid a base salary which shall continue at the rate
currently in effect, subject to adjustment as hereinafter provided. Executive's
base salary shall be reviewed on an annual basis and the Company shall increase
such base salary, by an amount, if any, it determines to be appropriate. Any
such increase shall not reduce or limit any other obligation of the Company
hereunder. Executive's annual base salary payable hereunder, as it may be
increased from time to time and without reduction for any amounts deferred as
described below, is referred to herein as "Base Salary". Executive's Base
Salary, as in effect from time to time, may not be reduced by the Company
without Executive's consent, provided that the Base Salary payable under this
paragraph shall be reduced to the extent Executive elects to defer or reduce
such salary under the terms of any deferred compensation or savings plan or
other employee benefit arrangement maintained or established by the Company. The
Company shall pay Executive the portion of his Base Salary not deferred in
accordance with its customary periodic payroll practices.
(b) Incentive Compensation. Executive shall be eligible to
participate in stock option, incentive compensation and other plans at a level
consistent with Executive's position with the Company and the Company's then
current policies and practices.
(c) Benefits, Perquisites and Expenses.
(i) Benefits. During the Term, Executive shall be
eligible to participate in (1) each welfare benefit plan sponsored or maintained
by the Company, including, without limitation, each life, hospitalization,
medical, dental, health, accident or disability insurance or similar plan or
program of the Company, and (2) each pension, profit sharing, retirement,
deferred compensation or savings plan sponsored or maintained by the Company, in
each case, whether now existing or established hereafter, to the extent that
Executive is eligible to participate in any such plan under the generally
applicable provisions thereof. With respect to the pension or retirement
benefits payable to Executive, Executive's service credited for purposes of
determining Executive's benefits and vesting shall be determined in accordance
with the terms of the applicable plan or program. Nothing in this Section 3(c),
in and of itself, shall be construed to limit the ability of the Company to
amend or terminate any particular plan, program or arrangement.
(ii) Vacation. During the Term, the Executive shall
be entitled to the number of paid vacation days in each calendar year determined
by the Company from time to time for its senior executive officers, but not less
than four (4) weeks in any calendar year. The Executive shall also be entitled
to all paid holidays given by the Company to its senior officers.
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Vacation days which are not used during any calendar year may not be accrued,
nor shall Executive be entitled to compensation for unused vacation days.
(iii) Perquisites. During the Term, Executive shall
be entitled to receive such perquisites (e.g., fringe benefits) as are generally
provided to other senior officers of the Company in accordance with the then
current policies and practices of the Company.
(iv) Business Expenses. During the Term, the Company
shall pay or reimburse Executive for all reasonable expenses incurred or paid by
Executive in the performance of Executive's duties hereunder, upon presentation
of expense statements or vouchers and such other information as the Company may
reasonably require and in accordance with the generally applicable policies and
practices of the Company.
4. Employment Termination. The Term of employment under this Agreement
may be earlier terminated only as follows:
(a) Cause. For purposes hereof, a termination by the
Corporation for "Cause" shall mean termination by action of at least two-thirds
of the members of the Board of Directors of the Company at a meeting duly called
and held upon at least 15 days' prior written notice to Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" (and at
which meeting Executive and his counsel were entitled to be present and given
reasonable opportunity to be heard) because of (i) Executive's conviction of any
felony (whether or not involving the Company or any of its subsidiaries)
involving moral turpitude which subjects, or if generally known, would subject,
the Company or any of its subsidiaries to public ridicule or embarrassment, (ii)
fraud or other willful misconduct by Executive in respect of his obligations
under this Agreement, or (iii) willful refusal or continuing failure to attempt,
without proper cause and, other than by reason of illness, to follow the lawful
directions of the Board of Directors following thirty days' prior written notice
to Executive of his refusal to perform, or failure to attempt to perform such
duties and which during such thirty day period such refusal or failure to
attempt is not cured by the Executive. "Cause" shall not include a bona fide
disagreement over a corporate policy, so long as Executive does not willfully
violate on a continuing basis specific written directions from the Board of
Directors, which directions are consistent with the provisions of this
Agreement. Action or inaction by Executive shall not be considered "willful"
unless done or omitted by him intentionally and without his reasonable belief
that his action or inaction was in the best interests of the Company, and shall
not include failure to act by reason of total or partial incapacity due to
physical or mental illness.
(b) Without Cause. Notwithstanding anything to the contrary
contained in this Agreement, the Company (with the affirmative vote of
two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose) may, at any time after at least 90 days' prior
written notice in accordance with Section 4(e) hereof to the Executive,
terminate the Executive's employment hereunder without Cause.
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<PAGE>
(c) Death or Disability. If Executive dies, his employment
shall terminate as of the date of death. If Executive develops a disability, the
Company may terminate Executive's employment hereunder. As used in this
Agreement, the term "disability"shall mean incapacity due to physical or mental
illness which has caused the Executive to be unable to substantially perform his
duties with the Company on a full time basis for (i) a period of twelve
consecutive months, or (ii) for shorter periods aggregating more than twelve
months in any twenty-four month period. During any period of Disability, the
Executive agrees to submit to reasonable medical examinations upon the
reasonable request, and at the expense, of the Company.
(d) Good Reason. The Executive may terminate the Executive's
employment for Good Reason at any time during the term of this Agreement. For
purposes of this Agreement, "Good Reason" shall mean any of the following:
(i) the assignment to the Executive by the Company of
any duties inconsistent with the Executive's status with the Company or a
substantial alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the date hereof, or a
reduction in the Executive's titles or offices as in effect immediately prior to
the date hereof, or any removal of the Executive from, or any failure to reelect
the Executive to, any of such positions, except in connection with the
termination of his employment for disability or cause or as a result of the
Executive's death or by the Executive other than for Good Reason, or the
termination by the Company's Board of Directors of the Automatic Extension;
(ii) a reduction by the Company in the Executive's
Base Salary as in effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement;
(iii) a relocation of the Executive's principal place
of employment or the relocation of the Company's principal office or corporate
headquarters to a location outside the Borough of Kennett Square, Pennsylvania.
(iv) any "Change of Control", (as defined in Section
6 hereof);
(v) any material failure by the Company to comply
with any of the provisions of this Agreement;
(vi) any termination of the Executive's employment
for reasons other than death, disability or Cause or the termination by the
Board of Directors of the Automatic Extension pursuant to Section 2(b) of this
Agreement;
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<PAGE>
(vii) the commencement of a proceeding or case, with
or without the application or consent of the Company or any of its subsidiaries,
in any court or competent jurisdiction, seeking (A) the liquidation,
reorganization, dissolution or winding-up of the Company or its subsidiaries, or
the composition or readjustment of the debts of the Company or its subsidiaries,
(B) the appointment of a trustee, receiver, custodian, liquidator or the like
for the Company or its subsidiaries or of all or any substantial part of their
respective assets, or (C) any similar relief in respect of the Company or its
subsidiaries under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts.
(e) Notice of Termination. Any termination, except for death,
pursuant to this Section 4 shall be communicated by a Notice of Termination. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated by the Company for disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period), (ii) if Executive's employment is
terminated due to Executive's death, on the date of death; (iii) if the
Executive's employment is terminated for Good Reason as a result of a Change of
Control, as set forth in Section 6 hereof; or (iv) if the Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which shall not be less than 90 nor more than 180 days from the
date such Notice of Termination is given).
5. Payments upon Termination.
(a) Termination Due to Death or Disability. Upon the death or
Disability of the Executive (i) the Company shall pay to the Executive or his
estate (1) his full Base Salary and other accrued benefits earned up to the last
day of the month of the Executive's death or Disability, (2) all deferred
compensation of any kind, including, without limitation, any amounts earned
under any bonus plan, and (3) if any bonus, under any bonus plan, shall be
payable in respect of the year in which the Executive's death or Disability
occurs, such bonus(es) prorated up to the last day of the month of the
Executive's death or Disability and (ii) all restricted stock, stock option and
performance share awards made to the Executive shall automatically become fully
vested as of the date of death or Disability.
(b) Termination for Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive: (i) his full Base
Salary through the Date of Termination (as defined in Section 4(f)) at the rate
in effect at the time Notice of Termination (as defined in Section 4(e)) is
given, and (ii) all deferred compensation of any kind. In addition, Executive
shall have the option to have assigned to him at no cost and with no
apportionment of prepaid premiums any assignable insurance policy owned by the
Company and relating specifically to Executive. The Company shall have no
further obligations to the Executive under this Agreement.
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<PAGE>
(c) Termination by Executive for Good Reason or by the Company
for Reasons other than for Cause or Death.
(i) In the event (1) the Company terminates the Term
without cause, or (2) the Executive terminates the Term for Good Reason, then
(I) the Company shall make a lump-sum payment to the Executive equal to (x) the
Base Salary payable to him for the greater of the remainder of the Term or two
(2) years plus (y) the value as of the date of grant (using a Black-Scholes
valuation) of all stock options granted to Executive during the two year period
immediately preceding such termination, provided that the value attributed to
such stock options shall not exceed sixty percent (60%) of Executive's average
Base Salary for the two year period preceding the termination of the Term,
multiplied by two; and (II) all stock options, stock awards and similar equity
rights, if any, shall vest and become exercisable immediately prior to the
termination of the Term and remain exercisable through their original terms with
all rights.
(ii) Following termination of the Term for any
reason, other than for Cause or upon the death of the Executive, the Company
shall also maintain in full force and effect, for the continued benefit of the
Executive for a period equal to the greater of (x) the period of the Term
otherwise remaining or (y) two (2) years without giving effect to such
termination, all employee benefit plans and programs to which the Executive was
entitled prior to the date of termination (including, without limitation, the
benefit plans and programs provided for herein) if the Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that the Executive's participation in any such plan
or program is barred by the terms thereof, the Company shall pay to the
Executive an amount equal to the annual contribution, payments, credits or
allocations made by the Company to him, to his account or on his behalf under
such plans and programs from which his continued participation is barred except
that if the Executive's participation in any health, medical, life insurance or
disability plan or program is barred, the Company shall obtain and pay for, on
the Executive's behalf, individual insurance plans, policies or programs which
provide to the Executive health, medical, life and disability insurance coverage
which is equivalent to the insurance coverage to which the Executive was
entitled prior to the date of termination.
6. Change of Control.
(a) Upon a Change of Control (as defined below), the Executive
may terminate the Term upon notice to the Company, effective as set forth in
such notice if at any time, within twenty-four (24) months following the date of
a Change of Control, any other event constituting Good Reason hereunder
continues for more than ten (10) days after the Executive delivers notice
thereof to the Company. The failure of Executive to exercise his rights
hereunder following an event constituting a Change of Control shall not preclude
Executive from exercising such rights following the occurrence of a subsequent
Change of Control event, even if related to a prior Change of Control Event.
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(b) Upon (i) the execution of a definitive agreement
(including, without limitation, any "lock-up" or voting agreement with any of
the Company's principal stockholders) which contemplates a transaction, or (ii)
the commencement of any tender or exchange offer or similar transaction for or
involving the Company's securities, which, in the case of any transaction of the
type described by clause (i) or (ii), if consummated, could result in a Change
of Control, all restricted stock, stock option and performance share awards made
to the Executive shall become automatically fully vested and exercisable in
order to provide the Executive with a reasonable time period to enable the
Executive to obtain the economic benefit of the contemplated transaction with
respect to all restricted stock, stock option and performance share awards then
held by him. Such restricted stock options and performance share awards shall
become automatically exercisable and shall remain exercisable through their
original terms with all rights; provided, however, in the event the transaction
contemplated by the definitive agreement referred to above is not consummated
and such definitive agreement is terminated, all accelerated restricted stock,
stock options and awards shall be deemed restored to the vesting schedules in
effect at the time of execution of such definitive agreement.
(c) For purposes of this Agreement, the term "Change of
Control" shall mean the happening of any of the following:
(i) when any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
used in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any subsidiary
thereof and any employee benefit plan sponsored or maintained by the Company or
any subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities of the Company
representing 25 percent or more of the combined voting power of the Company's
then outstanding securities;
(ii) when, during any period of 24 consecutive months
after the date of this Agreement, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority thereof; provided that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
6(d)(ii); or
(iii) the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
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7. Certain Tax Matters. The Company shall indemnify and hold the
Executive harmless from and against (i) the imposition of excise tax (the"Excise
Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or
any successor provision thereto, the "Code"), on any payment made under this
Agreement (including any payment made under this paragraph) and any interest,
penalties and additions to tax imposed in connection therewith, and (ii) any
federal, state or local income tax imposed on any payment made pursuant to this
paragraph. The Executive shall not take the position on any tax return or other
filing that any payment made under this Agreement is subject to the Excise Tax,
unless, independent tax counsel reasonably acceptable to the Company determines
after consultation with counsel for the Company that there is no reasonable
basis for taking the position that any such payment is not subject to the Excise
Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a
claim that any payment or portion thereof is subject to the Excise Tax, at the
Company's election, and the Company's direction and expense, the Executive shall
contest such claim; provided, however, that the Company shall advance to the
Executive the costs and expenses of such contest, as incurred. For the purpose
of determining the amount of any payment under clause (ii) of the first sentence
of this paragraph, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation applicable to individuals
in the calendar year in which such indemnity payment is to be made and state and
local income taxes at the highest marginal rates of taxation applicable to
individuals as are in effect in the jurisdiction in which the Executive is
resident, net of the reduction in federal income taxes that is obtained from
deduction of such state and local taxes.
8. Executive's Covenants.
(a) Nondisclosure. At all times during and after the Term,
Executive shall keep confidential and shall not, except with the Company's
express prior written consent, or except in the proper course of his employment
with the Company, directly or indirectly, communicate, disclose, divulge,
publish, or otherwise express, to any Person, or use for his own benefit or the
benefit of any Person, any trade secrets, confidential or proprietary knowledge
or information, no matter when or how acquired concerning the conduct and
details of the Company's business, including without limitation, names of
customers and suppliers, marketing methods, trade secrets, policies, prospects
and financial condition. For purposes of this Section 8, confidential
information shall not include any information which is now known by or readily
available to the general public or which becomes known by or readily available
to the general public other than as a result of any improper act or omission of
Executive.
(b) Non-Competition. During the Term hereof and for a period
of two (2) years thereafter, Executive shall not, except with Company's express
prior written consent, directly or indirectly, in any capacity, for the benefit
of any Person:
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(i) Solicit any Person who is or during such period
becomes a customer, supplier, employee, salesman, agent or representative of
Company, in any manner which interferes or might interfere with such Person's
relationship with Company, or in an effort to obtain such Person as a customer,
supplier, employee, salesman, agent, or representative of any business in
competition with Company within 15 miles of any office or facility owned, leased
or operated by Company.
(ii) Establish, engage, own, manage, operate, join or
control, or participate in the establishment, ownership (other than as the owner
of less than one percent of the stock of a corporation whose shares are publicly
traded), management, operation or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consultant to, any
Person in any business in competition with Company, at any location within 15
miles of any office or facility owned, leased or operated by Company, or act or
conduct himself in any manner which he would have reason to believe inimical or
contrary to the best interests of Company.
(c) Enforcement. Executive acknowledges that any breach by him
of any of the covenants and agreements of this Section 8 ("Covenants") will
result in irreparable injury to Employer for which money damages could not
adequately compensate Company, and therefore, in the event of any such breach,
Company shall be entitled, in addition to all other rights and remedies which
Company may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining Executive and/or all other Persons
involved therein from continuing such breach. The existence of any claim or
cause of action which Executive or any such other Person may have against
Company shall not constitute a defense or bar to the enforcement of any of the
Covenants. If Company is obliged to resort to litigation to enforce any of the
Covenants which has a fixed term, then such term shall be extended for a period
of time equal to the period during which a material breach of such Covenant was
occurring, beginning on the date of a final court order (without further right
of appeal) holding that such a material breach occurred, or, if later, the last
day of the original fixed term of such Covenant.
(d) Consideration. Executive expressly acknowledges that the
Covenants are a material part of the consideration bargained for by Company and,
without the agreement of Executive to be bound by the Covenants, Company would
not have agreed to enter into this Agreement.
(e) Scope. If any portion of any Covenant or its application
is construed to be invalid, illegal or unenforceable, then the other portions
and their application shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or similar
factor, then the court making such determination shall have the power to reduce
or limit such scope, duration, area or other factor, and such Covenant shall
then be enforceable in its reduced or limited form.
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9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of payment provided for under this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Date of Termination, or otherwise.
The amounts payable to Executive under Section 5 hereof shall not be treated as
damages but as severance compensation to which, Executive is entitled by reason
of termination of his employment in the circumstances contemplated by this
Agreement.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any benefit plan, employment agreement or
other contract, plan or arrangement.
10. Miscellaneous.
(a) Notices. All notices, requests, demands, consents or other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if and when (i) delivered
personally, (ii) mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) sent by a nationally recognized express courier
service, postage or delivery changes prepaid, with receipt, or (iv) delivered by
telecopy (with receipt, and with original delivered in accordance with any of
(i), (ii) or (iii) above) to the parties at their respective addresses stated
below or to such other addresses of which the parties may give notice in
accordance with this Section.
If to Company, to:
Genesis Health Ventures, Inc.
101 East State Street
Kennett Square, PA 19348
Attention: Law Department
Attention: Chairman and Chief Executive Officer
with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Stephen E Luongo, Esquire
-10-
<PAGE>
If to Executive, to:
Marc D. Rubinger
718 Amherst Circle
Newtown Square, PA 19073-2602
(b) Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous, written, oral, expressed or implied,
communications, agreements and understandings with respect to the subject matter
hereof.
(c) Modification. This Agreement shall not be amended,
modified, supplemented or terminated except in writing signed by both parties.
No action taken by Company hereunder, including without limitation any waiver,
consent or approval, shall be effective unless approved by a majority of the
Board of Directors.
(d) Termination of Prior Employment Agreements. All prior
employment agreements between Executive and Company and/or any of its affiliates
(and any of their predecessors) are hereby terminated as of the date hereof as
fully performed on both sides.
(e) Assignability and Binding Effect. This Agreement shall
inure to the benefit of and shall be binding upon the Company and its successors
and permitted assigns and upon Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without prior written consent of
the other party, and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and voice without effect.
(f) Severability. If any provision of this Agreement is
construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
(g) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof.
(h) Section Headings. Section and subsection headings in this
Agreement are inserted for convenience of reference only, and shall neither
constitute a part of this Agreement nor affect its construction, interpretation,
meaning or effect.
(i) References. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
-11-
<PAGE>
(j) Controlling Law. This Agreement is made under, and shall
be governed by, construed and enforced in accordance with, the substantive laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed entirely therein.
(k) Settlement of Disputes. The Company and Executive agree
that any claim, dispute or controversy arising under or in connection with this
Agreement, or otherwise in connection with Executive's employment by the Company
(including, without limitation, any such claim, dispute or controversy arising
under any federal, state or local statute, regulation or ordinance or any of the
Company's employee benefit plans, policies or programs) shall be resolved solely
and exclusively by binding arbitration. The arbitration shall be held in the
city of Philadelphia, Pennsylvania (or at such other location as shall be
mutually agreed by the parties). The arbitration shall be conducted in
accordance with the Expedited Employment Arbitration Rules (the "Rules") of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except that the arbitrator shall be selected by alternatively
striking from a list of five arbitrators supplied by the AAA. All fees and
expenses of the arbitration, including a transcript if either requests, shall be
borne equally by the parties. If Executive prevails as to any material issue
presented to the arbitrator, the entire cost of such proceedings (including,
without limitation, Executive's reasonable attorneys fees) shall be borne by the
Company. If Executive does not prevail as to any material issue, each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
Federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Company or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
(l) Approval and Authorizations. The execution and the
implementation of the terms and conditions of this Agreement have been fully
authorized by the Board of Directors.
(m) Indulgences, Etc. Neither the failure nor delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall the single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
-12-
<PAGE>
(n) Legal Expenses. In the event that the Executive institutes
any legal action to enforce his rights under, or to recover damages for breach
of this Agreement, the Executive, if he is the prevailing party, shall be
entitled to recover from the Company any actual expenses for attorney's fees and
disbursements incurred by him.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above mentioned, under seal, intending to be legally bound
hereby.
COMPANY:
Attest:
_____________________________ By:____________________________________
Secretary President
(Corporate Seal)
EXECUTIVE:
_______________________________________
Senior Vice President-Chief Information
Officer
-13-
<PAGE>
GENESIS HEALTH VENTURES, INC.
1998 NONQUALIFIED EMPLOYEE STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1998 Nonqualified Employee Stock Option
Plan (the "Plan") is to provide additional incentive to non-officer employees of
Genesis Health Ventures, Inc. (the "Company") and each present or future parent
or subsidiary corporation by encouraging them to invest in shares of the
Company's common stock, par value $.02 per share ("Common Stock"), and thereby
acquire a proprietary interest in the Company and an increased personal interest
in the Company's continued success and progress, to the mutual benefit of
directors, officers, employees and stockholders.
2. Aggregate Number of Shares
1,500,000 shares of the Company's Common Stock, shall be the
aggregate number of shares which may be issued under this Plan. Notwithstanding
the foregoing, in the event of any change in the outstanding shares of the
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Compensation Committee,
hereinafter referred to, deems in its sole discretion to be similar
circumstances, the aggregate number and kind of shares which may be issued under
this Plan shall be appropriately adjusted in a manner determined in the sole
discretion of the Compensation Committee. Reacquired shares of the Company's
Common Stock, as well as unissued shares, may be used for the purpose of this
Plan. Common Stock of the Company subject to options which have terminated
unexercised, either in whole or in part, shall be available for future options
granted under this Plan.
3. Class of Persons Eligible to Receive Options
All non-officer employees and consultants and advisors of the
Company and any present or future Company parent or subsidiary corporation are
eligible to receive an option or options under this Plan. The individuals who
shall, in fact, receive an option or options shall be selected by the
Compensation Committee, in its sole discretion, except as otherwise specified in
Section 4 hereof; provided, however, no "officer", as such term is defined under
Regulation 240.3b-2 of the Securities and Exchange Act of 1934 shall be
eligible to receive options.
4. Administration of Plan
(a) This Plan shall be administered by the Compensation
Committee (the "Committee"). The Committee shall consist of the Chairman of the
Board or such person(s) designated by the Chairman of the Board. The Committee
shall, in addition to its other authority and subject to the provisions of this
Plan, determine which individuals are eligible to receive options under this
Plan, which individuals shall in fact be granted an option or options, the
number of shares to be subject to each of the options, the time or times at
which the options shall be granted, the rate of option exercisability, and, the
price at which each of the options is exercisable and the duration of the
option.
<PAGE>
(b) The Committee shall adopt such rules for the conduct of
its business and administration of this Plan as it considers desirable. If
composed of more than one member, a majority of the members of the Committee
shall constitute a quorum for all purposes. The vote or written consent of a
majority of the members of the Committee on a particular matter shall constitute
the act of the Committee on such matter. The Committee shall have the right to
construe the Plan and the options issued pursuant to it, to correct defects and
omissions and to reconcile inconsistencies to the extent necessary to effectuate
the Plan and the options issued pursuant to it, and such action shall be final,
binding and conclusive upon all parties concerned. No member of the Committee or
the Board of Directors shall be liable for any act or omission (whether or not
negligent) taken or omitted in good faith, or for the exercise of an authority
or discretion granted in connection with the Plan to the Committee or the Board
of Directors, or for the acts or omissions of any other members of the Committee
or the Board of Directors.
5. Nonqualified Stock Options
(a) Options issued pursuant to this Plan are Nonqualified
Stock Options granted pursuant to Section 5(b) hereof. The option price for
Nonqualified Stock Options issued under this Plan shall be at least equal to the
fair market value of the Common Stock on the date of the grant of the option
except that the minimum option price may be equal to or greater than 85% of the
fair market value of the Company's Common Stock as of the date of the grant of
the option if the discount is expressly granted in lieu of a reasonable amount
of salary or cash bonus. The fair market value of the Company's Common Stock on
any particular date shall mean the last reported sale price of a share of the
Company's Common Stock on any stock exchange on which such stock is then listed
or admitted to trading, or on the NASDAQ National Market System, on such date,
or if no sale took place on such day, the last such date on which a sale took
place, or if the Common Stock is not then quoted on the NASDAQ National Market
System, or listed or admitted to trading on any stock exchange, the average of
the bid and asked prices in the over-the-counter market on such date, or if none
of the foregoing, a price determined by the Committee.
(b) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued pursuant to this Plan
shall be issued substantially in the form set forth in Appendix I hereof, which
form is hereby incorporated by reference and made a part hereof, and shall
contain substantially the terms and conditions set forth therein. Non-Qualified
Stock Options shall expire ten years after the date they are granted, unless
terminated earlier under the option terms. At the time of granting a
Non-Qualified Stock Option hereunder, the Committee may, in its discretion,
modify or amend any of the option terms contained in Appendix I for any
particular optionee.
6. Modification, Amendment, Suspension and Termination
The Board of Directors reserves the right at any time, and
from time to time, to modify or amend this Plan in any way, or to suspend or
terminate it, effective as of such date, which date may be either before or
after the taking of such action, as may be specified by the Board of Directors;
provided, however, that such action shall not affect options granted under the
Plan prior to the actual date on which such action occurred. If the Board of
Directors voluntarily submits a proposed modification, amendment, suspension or
termination for stockholder approval, such submission shall not require any
future modifications, amendments (whether or not relating to the same provision
or subject matter), suspensions or terminations to be similarly submitted for
stockholder approval.
-2-
<PAGE>
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ of the Company or any affiliated or subsidiary corporation or
interfere in any way with the rights of the Company or any affiliated or
subsidiary corporation to terminate his employment in any way.
(b) Corporate action constituting an offer of stock for sale
to any employee under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the employee, regardless of when the option is actually delivered to
the employee or acknowledged or agreed to by him.
(c) The terms "parent corporation" and "subsidiary
corporation" as used throughout this Plan, and the options granted pursuant to
this Plan, shall (except as otherwise provided in the option form) have the
meaning that is ascribed to that term when contained in Section 422(b) of the
Internal Revenue Code of 1986, as amended ("Code") and the regulations
thereunder, and the Company shall be deemed to be the grantor corporation for
purposes of applying such meaning.
(d) References in this Plan to the Code shall be deemed to
also refer to the corresponding provisions of any future United States revenue
law.
(e) The use of the masculine pronoun shall include the
feminine gender whenever appropriate, and wherever any words are used herein in
the singular form they shall be construed as though they were also used in the
plural form in all cases where they would so apply.
(f) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required, and such arrangements may be
either generally applicable or applicable only in specific cases.
(g) The Company shall have the right to deduct from any
payment to be made to an employee, or to otherwise require, prior to the
issuance or delivery of any shares of Common Stock or the payment of any cash
hereunder, payment by the employee of, any Federal, state or local taxes
required by law to be withheld.
-3-
<PAGE>
(h) This Plan shall be governed and construed in accordance
with the laws of the Commonwealth of Pennsylvania (regardless of the law that
might otherwise govern under applicable Pennsylvania principles of conflict of
laws).
(i) No option payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries no affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
(j) The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock pursuant to
any options hereunder.
(k) The provisions of options need not be the same with
respect to each optionee, and such options granted to an optionee need not be
the same in subsequent years.
(l) If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and the Plan shall be construed and enforced as if such
provisions had not been included.
-4-
<PAGE>
APPENDIX I
NONQUALIFIED STOCK OPTION
To: _______________________________________________________________________
Name
_______________________________________________________________________
Address
Date of Grant:_______________
You are hereby granted an option, effective as of the date hereof, to
purchase _________ shares of common stock, par value $.02 per share ("Common
Stock"), of Genesis Health Ventures, Inc. (the "Company") at a price of $ per
share pursuant to the Company's 1998 Nonqualified Employee Stock Option Plan
(the "Plan").
Your option may first be exercised on and after _______________, but not before
that time. [On and after _______________ and prior to _______________, your
option may be exercised for up to ____ % of the total number of shares subject
to the option minus the number of shares previously purchased by exercise of the
option (as adjusted for any change in the outstanding shares of the Common Stock
of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Compensation Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional ___% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Compensation Committee deems in
its sole discretion to be similar circumstances).](1) No fractional shares shall
be issued or delivered.
This option shall terminate and is not exercisable after ten years from
the date of its grant (the "Scheduled Termination Date"), except if terminated
earlier as hereafter provided.
- ------------------
(1) The bracketed portion of this paragraph should be included if the
number of shares which may be acquired upon exercise of the option will increase
over time.
<PAGE>
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check; (b) certificates
representing Common Stock of the Company which will be valued by the Secretary
of the Company at the fair market value per share of the Company's Common Stock
(as determined in accordance with the Plan) on the last trading day immediately
preceding the delivery of such certificates to the Company, accompanied by an
assignment of the stock to the Company; or (c) any combination of cash and
Common Stock of the Company valued as provided in clause (b). Any assignment of
stock shall be in a form and substance satisfactory to the Secretary of the
Company, including guarantees of signature(s) and payment of all transfer taxes
if the Secretary deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated other than by reason of (i)
disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations thereunder, or (ii) death (but in
no event later than the Scheduled Termination Date), whether such termination be
voluntary or not. After the date your employment is terminated, as aforesaid,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date your employment terminated. If you
are employed by a Company subsidiary corporation, your employment shall be
deemed to have terminated on the date your employer ceases to be a Company
subsidiary corporation, unless you are on that date transferred to the Company
or another Company subsidiary corporation. Your employment shall not be deemed
to have terminated if you are transferred from the Company to a Company
subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your legatee(s), distributee(s), executor or administrator, as the
case may be, may, at any time within one year after the date of your death (but
in no event later than the Scheduled Termination Date), exercise the option as
to any shares which you had a right to purchase and did not purchase during your
lifetime. If your service with the Company or a Company parent or subsidiary
corporation is terminated by reason of your becoming disabled (within the
meaning of Section 22(e)(3) of the Code and the regulations thereunder), you or
your legal guardian or custodian may at any time within one year after the date
of such termination (but in no event later than the Scheduled Termination Date),
exercise the option as to any shares which you had a right to purchase and did
not purchase prior to such termination. Your executor, administrator, guardian
or custodian must present proof of his authority satisfactory to the Company
prior to being allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Compensation Committee deems in its sole
discretion to be similar circumstances, the number and kind of shares subject to
this option and the option price for such shares shall be appropriately adjusted
in a manner to be determined in the sole discretion of the Compensation
Committee.
-2-
<PAGE>
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a stockholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of exercise of this
option during any period of time in which the Company deems, in its sole
discretion, that such delivery may not be consummated without violating a
federal, state, local or securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(b) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
-3-
<PAGE>
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of an opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "incentive stock option" as that term is used in Section 422 of the Code
and the regulations thereunder.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, modification or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
Commonwealth of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
GENESIS HEALTH VENTURES, INC.
By:_________________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option and, having
read it hereby signify my understanding of, and my agreement with, its terms and
conditions.
____________________________________________ ___________________________
(Signature) (Date)
-4-
<PAGE>
Subsidiaries
Exhibit 21
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
1804 Green Street Associates* General Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Accumed, Inc. Corporation New Hampshire
--------------------------------------------------- --------------------------------- -----------------
ASCO Healthcare of New England, Inc. * Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
ASCO Healthcare of New England, Limited Limited Partnership Maryland
Partnership *
--------------------------------------------------- --------------------------------- -----------------
ASCO Healthcare, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Brevard Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Brinton Manor, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Burlington Woods Convalescent Center, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Capital /Genesis ElderCare L. L. C.* Limited Liability Company New Hampshire
--------------------------------------------------- --------------------------------- -----------------
CareCard, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Care4, Limited Partnership Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Carefleet, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Caton Manor Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Catonsville Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Cheltenham LTC Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Compass Health Services, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Concord Healthcare Corporation Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Concord Pharmacy Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Crestview Convalescent Home, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Crestview North, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Crozer-Genesis ElderCare, Inc.* Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Crozer-Genesis ElderCare Limited Partners* Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Crystal City Nursing Center, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Delco Apothecary, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Derby Nursing Center Corporation Corporation Connecticut
--------------------------------------------------- --------------------------------- -----------------
Dover Healthcare Associates, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Eastern Medical Supplies, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Eastern Rehab Services, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Easton Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Edella Street Associates Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
EIDOS, Inc. Corporation Florida
--------------------------------------------------- --------------------------------- -----------------
Encare of Massachusetts, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Franklin Square/Meridian Healthcare Nursing Home Limited Partnership Maryland
Limited Partnership*
--------------------------------------------------- --------------------------------- -----------------
Frederick Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Adult Day Health Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Centers I, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Centers I, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Centers II, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Centers II, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Centers III, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Centers III, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Partnership Centers, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Diagnostic Services, Inc. f/k/a Corporation Pennsylvania
Diversified Diagnostics, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Home Care Services, Inc. Corporation Pennsylvania
f/k/a Healthcare Services Network, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Home Health Services - Corporation Pennsylvania
Southern, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Hospitality Services, Inc. Corporation Pennsylvania
f/k/a HCHS, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Living Facilities, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Management Services, Inc. f/k/a Corporation Delaware
Bluefield Manor, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare National Centers, Inc. f/k/a Corporation Florida
National Health Care Affiliates, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Network Services, Inc. Corporation Pennsylvania
f/k/a Genesis Management Resources, Inc.
f/k/a Total Care Systems, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Network Services of Corporation Pennsylvania
Massachusetts, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Partnership of New England, Limited Partnership Massachusetts
Limited Partnership*
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Physician Services, Inc. Corporation Pennsylvania
f/k/a Genesis Physician Services, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Properties, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Rehabilitation Management Corporation Pennsylvania
Services, Inc. f/k/a Robindale Medical Services,
Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Rehabilitation Services, Inc. Corporation Pennsylvania
f/k/a Team Rehabilitation, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Eldercare Staffing Services, Inc. Corporation Pennsylvania
f/k/a Staff Replacement Services, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Transportation Services, Inc. Corporation Pennsylvania
f/k/a HSS-PARA Transit, Inc.
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Services Corporation Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Arlington, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Bloomfield, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Clarks Summit, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Indiana, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Lanham, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Massachusetts, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Naugatuck, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of New Garden, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Point Pleasant, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Salisbury, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Wayne, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of West Virginia, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of West Virginia, Limited Limited Partnership Pennsylvania
Partnership
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Wilkes-Barre, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures of Windsor, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Health Ventures, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Healthcare Centers Holdings, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis Holdings, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis Immediate Med Center, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Properties Limited Partnership Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Genesis Properties of Delaware Corporation Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis Properties of Delaware Ltd. Partnership, Limited Partnership Delaware
L.P.
--------------------------------------------------- --------------------------------- -----------------
Geriatric & Medical Companies, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Geriatric & Medical Services, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Geriatric and Medical Investments Corp. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
GeriMed Corp. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
GMC Leasing Corporation Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
GMC Medical Consulting Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
GMC-LTC & Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
GMS Insurance Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
GMS Management - Tucker, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
GMS Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Governor's House Nursing Home, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Greenspring Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Hallmark Healthcare Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Hamilton Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Hammonds Lane Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Health Concepts and Services, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Healthcare Resources Corp. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Hilltop Health Care Center, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Horizon Medical Equipment and Supply, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Innovative Health Care Marketing, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Innovative Pharmacy Services, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Institutional Health Care Services, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Keystone Nursing Home, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Knollwood Manor, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Knollwood Nursing Home, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
L. I. H. Chestnut Associates, L. P.* Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Lake Manor, Inc.* Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Lake Washington, Ltd.* Limited Partnership Florida
--------------------------------------------------- --------------------------------- -----------------
Life Support Medical Equipment, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Life Support Medical, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Lincoln Nursing Home, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Magnolia Gardens L. L. C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
Main Street Pharmacy, L. L. C. Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
Manor Management Corporation of Georgian Manor, Corporation Pennsylvania
Inc.
--------------------------------------------------- --------------------------------- -----------------
McKerley Health Care Center - Concord Limited Limited Partnership New Hampshire
Partnership
--------------------------------------------------- --------------------------------- -----------------
McKerley Health Care Center - Concord, Inc. Corporation New Hampshire
--------------------------------------------------- --------------------------------- -----------------
McKerley Health Care Centers, Inc. Corporation New Hampshire
--------------------------------------------------- --------------------------------- -----------------
McKerley Health Facilities General Partnership New Hampshire
--------------------------------------------------- --------------------------------- -----------------
Medical Services Group, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian Edgewood Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian Growth & Income Fund* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian Health, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Meridian Healthcare Investments, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian Healthcare, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Meridian Perring Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian Valley Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian Valley View Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Meridian/Constellation Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Metro Pharmaceuticals, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Millville Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Mooresville Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
National Pharmacy Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Neighborcare Home Medical Equipment of Maryland, Limited Liability Company Maryland
L. L. C.*
--------------------------------------------------- --------------------------------- -----------------
NeighborCare of New Hampshire L. L. C. * Limited Liability Company New Hampshire
--------------------------------------------------- --------------------------------- -----------------
NeighborCare Pharmacies, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Network Ambulance Services, Inc. f/k/a Life Corporation Pennsylvania
Support Ambulance, Inc.
--------------------------------------------------- --------------------------------- -----------------
Norristown Nursing & Rehabilitation Center Limited Partnership Pennsylvania
Associates, L. P.
--------------------------------------------------- --------------------------------- -----------------
North Cape Convalescent Center Associates, L. P. Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Northwest Total Care Centers Associates, L. P. Limited Partnership New Jersey
--------------------------------------------------- --------------------------------- -----------------
Oak Hill Health Care Center, Inc. Corporation Virginia
--------------------------------------------------- --------------------------------- -----------------
Pharmacy Equities, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Philadelphia Avenue Associates Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Philadelphia Avenue Corporation Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Plainfield Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
PPS-GBMC Joint Venture, L. L. C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
Professional Pharmacy Services, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
Prospect Park LTC Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Quakertown Manor Convalescent and Rehabilitation, Corporation Delaware
Inc.
--------------------------------------------------- --------------------------------- -----------------
Randallstown Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
Respiratory Health Services, L. L. C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
River Ridge Partnership* General Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
River Street Associates Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Seminole Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Spencer Meridian Limited Partnership* Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
State Street Associates Limited Partnership Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
State Street Associates, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Suburban Medical Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
The Tidewater Healthcare Shared Services Group, Corporation Pennsylvania
Inc.*
--------------------------------------------------- --------------------------------- -----------------
Therapy Care Systems, L. P. Limited Partnership Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Therapy Care, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Transport Services, Inc. Corporation Maryland
--------------------------------------------------- --------------------------------- -----------------
United Health Care Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Valley Medical Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Valley Transport Ambulance Service, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Versalink, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Villas Realty & Investments, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Visiting Nurse Associates of Maryland, L. L .C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
VNA Hospice of Maryland L. L. C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
VNA Management Services L. L. C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
VNA Home Care of Maryland, L. L C.* Limited Liability Company Maryland
--------------------------------------------------- --------------------------------- -----------------
Volusia Meridian Limited Partnership Limited Partnership Maryland
--------------------------------------------------- --------------------------------- -----------------
Walnut LTC Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Wayside Nursing Home, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Weisenfluh Ambulance Service, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
West Philadelphia LTC Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Wyncote Healthcare Corp. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
York LTC Management, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Vitalink Infusion Services, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
White, Mack & Wart, Inc. d/b/a Propac Pharmacy Corporation Oregon
--------------------------------------------------- --------------------------------- -----------------
Medisco Pharmacies, Inc. Corporation California
--------------------------------------------------- --------------------------------- -----------------
TeamCare, Inc. a/k/a Vitalink-TeamCare, Inc. Corporation Delaware
(CA); Drug System, Inc. (CO); TeamCare, Inc., a
Vitalink Company (CO, IL GA, Iowa); TeamCare, a
Vitalink Company (NJ, NY, NC, SC, TX, WA, WI, VA
& DC
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TeamCare Clinical Services, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
CompuPharm of Northern California, Inc. Corporation California
--------------------------------------------------- --------------------------------- -----------------
GCI Innovative Pharmacy, Inc. Corporation Wisconsin
--------------------------------------------------- --------------------------------- -----------------
CompuPharm Ohio Pharmacy, Inc. Corporation Ohio
--------------------------------------------------- --------------------------------- -----------------
TeamCare of Indiana, Inc. Corporation Indiana
--------------------------------------------------- --------------------------------- -----------------
TeamCare of Virginia, Inc. Corporation Virginia
--------------------------------------------------- --------------------------------- -----------------
Vitalink Subsidiary, Inc. Corporation Oklahoma
--------------------------------------------------- --------------------------------- -----------------
Academy Nursing Home, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Apple Valley Limited Partnership Limited Partnership Massachusetts
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
ADS Apple Valley, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Consulting, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Danvers ALF, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
ADS Dartmouth ALF, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
ADS Dartmouth General Partnership General Partnership Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Group, The Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Hingham ALF, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
ADS Hingham Limited Partnership Limited Partnership Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Hingham Nursing Facility, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Home Health, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
ADS Management, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Multicare, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
ADS Palm Chelmsford, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Recuperative Center Limited Partnership Limited Partnership Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Recuperative Center, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Reservoir Waltham, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Senior Housing, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS Village Manor, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS-NDNE Danvers, L. L. C.* Limited Liability Company Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS-NDNE Dartmouth, L. L. C.* Limited Liability Company Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ADS-NDNE Hingham, L. L. C.* Limited Liability Company Massachusetts
--------------------------------------------------- --------------------------------- -----------------
ANR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Applewood Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
ASL, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Assisted Living Associates of Berkshire, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Assisted Living Associates of Lehigh, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Assisted Living Associates of Pennington, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Assisted Living Associates of Sanatoga, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Assisted Living Associates of Wall, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Automated Professional Accounts, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Berks Nursing Homes, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Bethel Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Breyut Convalescent Center, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Brightwood Property, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Care Haven Associated Limited Partnership* Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
Century Care Construction, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Century Care Management, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Chardon Quality Care, Inc. Corporation Ohio
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Chateau Village Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
CHG Investment Corporation, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
CHNR-1, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Colonial Hall Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Colonial House Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Concord Companion Care, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Concord Health Group, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Concord Healthcare Services, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Concord Home Health, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Concord Rehab, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
Concord Service Corporation Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Cumberland Associated Of Rhode Island, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
CVNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Dartmouth Assisted Living L. L. C.* Limited Liability Company Delaware
--------------------------------------------------- --------------------------------- -----------------
Delm Nursing, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Elmwood Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Encare of Mendham, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Encare of Pennypack, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Encare of Quakertown, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Encare of Wyncote, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
ENR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Genesis ElderCare Corp. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Glenmark Associates Dawn View Manor, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Glenmark Associates, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Glenmark Limited Liability I Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Glenmark Properties I, Limited Partnership* Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
GMA Brightwood, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
GMA Construction, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
GMA Madison, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
GMA Partnership Holding Company, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
GMA Uniontown, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Groton Associates of Connecticut, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Arcadia, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Boardman, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Bridgeton, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Cedar Grove, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Cinnaminson, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Colchester, Inc. Corporation Connecticut
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Columbus, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Cranbury, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Cumberland, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Eatontown, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Emery, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Englewood, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Ewing, L L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Fair Lawn, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Farmington, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Gardner, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Health Resources of Gladstonbury, Inc. Corporation Connecticut
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Groton, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Jackson, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Karmenta & Madison, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Lakeview, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Lakeview, Limited Liability Limited Liability Company New Jersey
Company
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Lemont, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Lynn, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Madison, Inc.1 Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Marcella, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Middletown (R. I.), Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Montclair, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Morristown, Inc. Corporation filing for
reinstatement
in New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Norfolk, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Norwalk, Inc. Corporation Connecticut
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Pennington, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Ridgewood, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Rockville, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of South Brunswick, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Stafford, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Tazewell, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Troy Hills, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Wallingford, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Warwick, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Health Resources of West Orange, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Health Resources of Westwood, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Healthcare Rehab Systems, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Heritage at Danvers, L. L. C.* Limited Liability Company
--------------------------------------------------- --------------------------------- -----------------
Hingham Assisted Living, L. L. C.* Limited Liability Company Delaware
--------------------------------------------------- --------------------------------- -----------------
Hingham Healthcare Limited Partnership* Limited Partnership Massachusetts
--------------------------------------------------- --------------------------------- -----------------
HMNH Realty, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
HNCA, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Holly Manor Associates of New Jersey, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Horizon Associates, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Horizon Mobile, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Horizon Rehabilitation, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
House of Campbell, Inc. (The) Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
HR of Charleston, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
HRWV Huntington, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
HRWV, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
HRWV-1, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Lakewood Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Laurel Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Lehigh Nursing Homes, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Long Term Assets, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
LRC Holding Company Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
LWNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Mabri Convalescent Center, Inc. Corporation Connecticut
--------------------------------------------------- --------------------------------- -----------------
Markglen, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Marshfield Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Mercerville Associates of New Jersey, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
MHNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Middletown (RI) Associates of RI,L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Montgomery Nursing Homes, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Multicare AMC, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Multicare Home Health of Illinois, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Northwestern Management Services, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Nursing & Retirement Center of the Andovers, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
PHC Operating Corporation Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Pocahontas Continuous Care Center, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Point Pleasant Haven Limited Partnership Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
Pompton Associates, L. P. Limited Partnership New Jersey
--------------------------------------------------- --------------------------------- -----------------
Pompton Care, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Prescott Nursing Home, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Progressive Rehabilitation Centers, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Providence Health Care, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Providence Medical, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Raleigh Manor Limited Partnership Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
Recuperative Center, Limited Partnership (The) Limited Partnership Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Rest Haven Nursing Home, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Ridgeland Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
River Pines Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Rivershores Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
RLNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Roephel Convalescent Center, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Romney Health Care Center, Limited Partnership Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
Rose Healthcare, Inc. Corporation New Jersey
--------------------------------------------------- --------------------------------- -----------------
Rose View Manor, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Roxborough Nursing Home, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
RPNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
RSNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
RVNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
S.T.B. Investors, LTD. Corporation New York
--------------------------------------------------- --------------------------------- -----------------
Schuylkill Nursing Homes, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Schuylkill Partnership Acquisition Corporation Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Scotchwood Mass. Holding Co., Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Senior Living Ventures, Inc. Corporation Pennsylvania
--------------------------------------------------- --------------------------------- -----------------
Senior Source, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Sisterville Haven Limited Partnership Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
Snow Valley Health Resources, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Solomont Family Fall River Venture, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Solomont Family Medford Venture, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Stafford Convalescent Center, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
SVNR, Inc. Corporation Delaware
--------------------------------------------------- --------------------------------- -----------------
Teays Valley Haven Limited Partnership Limited Partnership West Virginia
--------------------------------------------------- --------------------------------- -----------------
The Straus Group-Hopkins House Limited Partnership Limited Partnership New Jersey
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
State of
Entity Name Entity Type Organization
--------------------------------------------------- --------------------------------- -----------------
The Straus Group-Old Bridge, L. P. Limited Partnership New Jersey
--------------------------------------------------- --------------------------------- -----------------
The Straus Group-Quakertown Manor, L. P. Limited Partnership New Jersey
--------------------------------------------------- --------------------------------- -----------------
The Straus Group-Ridgewood, L. P. Limited Partnership New Jersey
--------------------------------------------------- --------------------------------- -----------------
Total Rehabilitation Center, L. L. C. Limited Liability Company New Jersey
--------------------------------------------------- --------------------------------- -----------------
Tri State Mobile Services, Inc. Corporation West Virginia
--------------------------------------------------- --------------------------------- -----------------
Wallingford Associates of CT, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Warwick Associates of RI, L. P. Limited Partnership Delaware
--------------------------------------------------- --------------------------------- -----------------
Westford Nursing & Retirement Center, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
Westford Nursing & Retirement Center, Limited Limited Partnership Massachusetts
Partnership
--------------------------------------------------- --------------------------------- -----------------
Willow Manor Nursing Home, Inc. Corporation Massachusetts
--------------------------------------------------- --------------------------------- -----------------
</TABLE>
84
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Genesis Health Ventures, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 which register shares of your Common Stock issued under the Amended and
Restated Employee Stock Option Plan and the 1992 Stock Option Plan for
Non-Employee Directors of Genesis Health Ventures, Inc., of our reports dated
December 15, 1998, relating to the consolidated balance sheets of Genesis Health
Ventures, Inc. and subsidiaries as of September 30, 1998 and 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1998
and the related schedule, which reports appear in the September 30, 1998 annual
report on Form 10-K of Genesis Health Ventures, Inc.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
December 29, 1998
85
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 4,902,000
<SECURITIES> 26,658,000
<RECEIVABLES> 449,742,000
<ALLOWANCES> 73,719,000
<INVENTORY> 63,760,000
<CURRENT-ASSETS> 574,179,000
<PP&E> 717,750,000
<DEPRECIATION> 121,188,000
<TOTAL-ASSETS> 2,627,368,000
<CURRENT-LIABILITIES> 268,461,000
<BONDS> 0
0
6,000
<COMMON> 704,000
<OTHER-SE> 874,362,000
<TOTAL-LIABILITY-AND-EQUITY> 2,627,368,000
<SALES> 1,405,305,000
<TOTAL-REVENUES> 1,405,305,000
<CGS> 1,175,798,000
<TOTAL-COSTS> 1,259,365,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 94,817,000
<INTEREST-EXPENSE> 82,088,000
<INCOME-PRETAX> (30,965,000)
<INCOME-TAX> (8,158,000)
<INCOME-CONTINUING> (22,321,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,924,000)
<CHANGES> 0
<NET-INCOME> (25,900,000)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> (.74)
</TABLE>
